We made the judgement that the risks to demand were such that, even allowing for the weaker exchange rate and any immediate effects on supply, Bank rate should be reduced. But there’s no inevitability about the balance of these effects. I’ve described how the current inflation is in part the result of a divergence between the effective expectations of consumers and those in financial markets. If those expectations were to re-converge, from either end, inflationary pressure would diminish. If they diverge further the opposite would happen. Firms’ expectations will affect their investment and purchasing decisions, and these in turn can have an impact on productivity. Some of those effects could come through faster than people often assume. If they do, then even the argument that Brexit lowers growth and therefore interest rates isn’t watertight. And, to add something else to these risks, something I haven’t dealt with in this speech, a sudden switch to WTO trading rules would involve the immediate imposition of tariffs on imports, further raising their cost. Predicting others’ predictions isn’t easy, and I don’t think the balance of risks to inflationary pressure, and therefore future interest rates, is obvious. In the meantime, the MPC has little choice, it seems to me, but to take the economic data at face value. To adapt the football manager’s cliché, we can only play the economy that’s in front of us. What’s been in front of us for several months is an economy with above-target inflation and dwindling spare capacity.

Before the settlement is finalised, Norges Bank verifies whether the banks have sufficient funds in their accounts in Norges Bank. The introduction of collateral requirements for banks’ loans has lowered the risk assumed by Norges Bank. Supervision has been substantially strengthened since the banking crisis. The Banking, Insurance and Securities Commission’s resources have been increased. Greater emphasis is placed on on-site supervision. The methodology for document-based supervision has been improved. Internal control routines have been enhanced. International surveillance cooperation has also been strengthened. In addition, the authorities have become more aware of the importance of monitoring the financial system. The aim is to identify emerging tensions and possible sources of system failure at an early stage. 4. Prevention work in Norges Bank  The work undertaken by Norges Bank to maintain financial stability can be divided into three areas of activity: •  continuous monitoring of factors that affect financial stability;  •  work to reduce the risk in payment systems and increase their robustness; and  •  assess the effects of monetary policy and economic policy in general. Surveillance Surveillance primarily consists of analyses of the relationship between macroeconomic developments and the financial strength of financial institutions. Norges Bank’s analyses are presented in semi-annual reports on financial stability, called “Financial Sector Outlook”. Experience shows that effective surveillance requires more than monitoring the earnings and capital adequacy of banks and other financial institutions. Developments in other markets must also be monitored.