may have limited the extent to which households increased their savings as a precaution against the possibility of future job loss. structural adjustments but the response of policy and the emerging recovery should not obscure the fact that structural adjustments need to occur in our economy. the banking system faces a significant for more information see the box on page 29 of the august inflation report. challenge to wean itself off the current substantial levels of official support and to return to a position in which it can lend normally. households may need to re - evaluate their financial positions in the face of the more uncertain economic environment. and the need for a substantial reduction in the fiscal deficit is clear. monetary policy cannot and should not prevent those adjustments from happening. they are necessary for the long - run health and stability of our economy. rather, the job of monetary policy is to ensure that these adjustments occur in as orderly a manner as possible and within an economic environment which is consistent with hitting the 2 % inflation target. prospects for 2010 and beyond so what does the next year hold in store? the economy appears to have turned. although output is estimated to have contracted in the third quarter of this year, there is a range of evidence from business surveys, from the bank ’ s regional agents, and from recent indicators that the economy has begun to stabilise and that we are likely to be moving into a period of renewed expansion. whenever an economy is in recession, especially a recession as deep as this one, it can be hard to see where growth will eventually come from. however, as i have discussed, the easing in monetary and fiscal policy is providing considerable support to the emerging recovery. that stimulus is reinforced by the substantial depreciation of sterling. sterling is around a quarter below its mid - 2007 level and – as many of you here today will know from your own experiences – this has helped to improve the ability of uk companies to compete in both overseas and domestic markets. output will also receive a further fillip as the adjustment of inventories by companies runs it course. however, the on - going structural adjustments that i mentioned are likely to give rise to a number of economic headwinds that may impede the recovery. credit conditions are likely to remain tight for some time as banks repair their balance sheets. and the need for public and household finances to adjust to the changed economic environment will weigh on spending. balancing these factors, my view of the outlook for gdp growth is in line with the projections contained in the bank ’ s

. investment cycle is expected to be further strengthened by the continuation of the productive fiscal investments. as the external demand is envisaged to recover further, additional stimuli is expected through this channel. the above mentioned growth factors are expected to strengthen further the labor market and the disposable income of the households, hence boosting the private consumption as well. the growth expectations provide room for additional rise of the deposit potential in the banking system, which accompanied with the rise in the credit demand and the willingness of the banks to lend, should enable credit growth at a rate of 9 – 10 % in the period to come. the inflation is expected to be influenced mainly by the global prices of primary commodities and the consumers prices of our main trading partners. an average inflation of 0. 5 % is expected for 2015, with the current forecast indicating its reversal to 2 % in 2016, reflecting the rise in the demand and in the import prices. the structural improvements in the export sector are expected to continue in 2015, which along with the overall external recovery and the much lower oil prices, are envisaged to bring about a moderate current bis central bankers ’ speeches account deficit of bellow 1. 6 % of gdp. in the following year, widening to 3 % is expected, reflecting the fall in private transfers and import pressures from the new investment. the external financing needs, within the current scenario, are expected to be covered by further inflows of foreign direct investments and by the public borrowing for infrastructure purposes. the current forecast points to a rather stable external debt to gdp ratio. no major pressures are foreseen in the following two years on foreign reserves, and they are to be maintained at the adequate level. risks surrounding this baseline macroeconomic scenario should not be neglected. for us, as a small an open economy, they mostly come from the external environment and our main trading and financial partners. although with the latest monetary easing of the ecb the downside risks to the euro zone growth are less pronounced, and in general the global growth risks are more balanced, they are still present and if being materialized, could impact the economy. additional source of risks are the sharp and sudden swings in the primary commodities prices, which for country like ours, can change the envisaged economic profile to a large extent. a new, additional source of risks is the current domestic political context, which can harm the economy, if not being tackled swiftly. of course, the risks are challenging and are to be closely