But the extent to which an easing in the labour market induced by monetary tightening will weigh against inflationary pressures will depend on the wider context. It is here where the interaction with developments in energy prices plays out. Higher energy prices and the terms of trade In contrast with developments in the US, wholesale European natural gas prices have risen very sharply over the past year, and continue to show substantial volatility. Owing to the importance of pipeline infrastructure to the transport of natural gas, there is much less integration than for other energy commodities like oil. Notwithstanding Brexit, for these reasons, the UK remains closely integrated into the European natural gas market. Gas price developments in Europe have departed very significantly from those in the US, owing to the disruption to supplies of gas from Russia in the aftermath of the Russian invasion of Ukraine last February. The rise in European gas prices came as a genuine surprise: the Russian invasion was not foreseen in the autumn of 2021, and the duration and intensity of the subsequent conflict have anyway proved greater than expected at the outset. The rise in gas prices has therefore been substantial: at its peak in late August, the April natural gas future stood more than ten times higher than a year previously.
The text has also benefitted from helpful comments from Andrew Bailey, Ben Broadbent, Fabrizio Cadamagnani,  Page 11  Jonathan Haskell, Josh Jones, Catherine Mann, Rhys Phillips, Dave Ramsden, Andrea Rosen, Martin Seneca, Fergal Shortall and Silvana Tenreyro for which I am most grateful. Opinions (and all remaining errors and omissions) are my own. 1. See Money Marketeers of New York University  . 2. Another – and, in my view, largely equivalent – way to characterise this process of ‘normalisation’ is as an ‘exit’ from the exceptional and unconventional policy measures introduced in the face of the global financial crisis and its aftermath. From the introduction of those measures, it was recognised widely in the central bank community that such exit would pose challenges for the design, implementation and communication of monetary policy. 3. Moreover, the large portfolio of asset purchases accumulated as a result of QE has been run down in parallel with the rise in Bank Rate. Since March 2022, the Bank of England has ceased to reinvest the proceeds of maturing bonds held in its Asset Purchase Facility (APF) used to house the QE portfolio. As of November 2022, the Bank has sold gilts from the APF to the market. Corporate bond holdings in the APF have been reduced by similar means. 4. The concept of a ‘neutral’ balance sheet remains even more elusive than that of a ‘neutral’ interest rate at both empirical and conceptual levels, so I focus on the interest rate dimension here. 5.