However difficult the  consequences might be for the economy, the MPC must stay the course and set monetary policy to return inflation to achieve the 2% target sustainably in the medium term, consistent with the remit given to us. With thanks to Rupal Patel for her assistance in preparing these remarks, and to my fellow MPC members and numerous Bank colleagues, including Callum Ashworth, Fabrizio Cadamagnani, Alan Castle, Grace Greer, Thomas Jennings, Josh Martin, Maggie Illingworth, Harry Rigg, Andrea Rosen, May Rostom, Martin Seneca, Bradley Speigner, Boromeus Wanengkirtyo for their many helpful contributions. 1. There is a huge literature on techniques for and applications of the identification of shocks. Different categorisations have been used for a variety of policy purposes. For example whether shocks are common or idiosyncratic was a key consideration for HM Treasury’s 2003 Five Tests assessment of whether the UK should join the Euro. Other common categorisations include are they exogenous or endogenous, are they temporary or permanent and are they positive or negative. 2. I am grateful to my MPC colleague Jonathan Haskel for this international comparison. 3. The latest of a series of puzzles about the structural behaviour of the UK economy. The most well-known is the productivity puzzle which has spawned a huge literature including my own contribution, see The UK’s productivity growth challenge - speech by Dave Ramsden (bankofengland.co.uk). 4.
Chart 8: Financial market medium term inflation compensation (5y2y forward swap)  Sources: Barclays live and Bank calculations. The Monetary Policy Response Let me conclude by setting out how in response to these developments the MPC is setting monetary policy to ensure that CPI inflation will return to the 2% target in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The MPC started to tighten monetary policy in December 2021, raising Bank rate from 0.1% to 0.25%. So much has happened since but it is worth recalling that last December was less than three months after the end of the furlough scheme here in the UK and was when the rapid emergence of the Omicron variant was a major concern. It was also three months before the Fed started to tighten policy in the US and almost seven months before the ECB began the tightening cycle in the euro area. Bank rate has been increased at every MPC meeting since December 2021 and was increased by 0.5% at both the August and September meetings, to its current level of 2.25%[9]. Along with two of my MPC colleagues I voted for a larger 0.75% increase in Bank Rate, to 2.5% at the September 2022 meeting. At the time the three of us highlighted that the recent data outturns had already registered more persistent inflationary pressures and that mediumterm measures of inflation expectations remained high.