On the other hand, significant increases in international energy, food and goods prices over the past year imply a substantial squeeze in UK residents’ real incomes, which will weigh on future demand and employment. Looking beyond the shorter term, UK inflation is set to fall as global commodity prices stabilise, bottlenecks in global supply chains ease, and domestic inflationary pressure dissipates as the real income squeeze opens up a margin of economic slack. These two elements define the two sides of the narrow path along which the MPC has to navigate. The MPC sees an upside skew in the risks around the inflation baseline in the latter part of the forecast period. The balance of risk is tilted towards inflation proving stronger and more persistent than anticipated in that baseline. A number of underlying structural developments point in this direction. For example: (1) Brexit may  Page 14  have reduced the contestability of UK labour markets by EU immigrants and workers;[13] (2) the broader globalisation process – which helped contain external inflationary impulses to the UK around the turn of the century[14] – looks to have stalled and may be in retreat, reducing the competitive pressure on UK producers to contain costs; and (3) the impact of aging and longerterm health consequences of the pandemic may have led to a decline in UK labour force participation.
Page 1  The economic situation and monetary policy − speech by Huw Pill Given at ACCA Cymru Wales  Page 2  Published on 20 May 2022  Huw Pill talks about what we’re doing to bring inflation down. And he gives his view on the outlook for the UK’s economy. Speech Good morning everyone. It is a great pleasure to speak here in Cardiff this morning. Thanks are due to: Lloyd Powell, Head of the Association of Chartered Certified Accountants (ACCA) Cymru Wales, for the invitation to speak here today; to Steve Hicks and Ian Derrick – the Bank’s Agents in Wales – for organising a fantastic visit, of which this is one of the highlights; and of course to all of you for coming this morning at what I am sure are busy and challenging times. On Wednesday, we learnt that UK consumer price inflation currently stands at 9.0%. [1] The MPC forecasts that it will rise to double digits in the fourth quarter of this year. For a monetary policy maker charged with achieving an inflation target of 2%, this is obviously a very uncomfortable situation. But, of course, my discomfort as an MPC member in these circumstances is as nothing to the challenges facing those most directly exposed to the current cost of living crisis. These are difficult times for many people, especially for the less well off, who spend a higher proportion of their income on energy and food, where recent price rises have been most significant.