output gap from energy prices, which serves to highlight the material uncertainty around these estimates in general. chart 2 : the energy price shock might have had a smaller impact on the output gap than we previously thought estimated impact of energy prices on output gap, for different model relationships ( a ) source : bank of england ( a ) chart shows the estimated impact of energy prices on the output gap in the november 2024 mpr forecast using different model relationships. all three lines use the same energy price profile, taken from the november 2024 mpr forecast. the line labelled ‘ previous ’ refers to the 2021 model relationships. the line labelled ‘ cross check model ’ refers to a re - estimated version of the compass dsge model. see box b in the november 2022 mpr for further discussion of the treatment of energy price shocks. once again, these changes matter for medium - term inflation. indeed the lower effect on demand via the energy price channel helps to explain part of the upwards revision in the output gap that i just talked about. as i mentioned earlier, a 1 percentage point upwards revision in the output gap, which is roughly what we have here, might push up on inflation by 0. 3 to 0. 4 percentage points. example 3 : other drivers of energy prices my final example relates to the role of climate mitigation policy in energy prices where there is now evidence that policies aimed at the climate transition were probably more important contributors to the recent rise and fall in inflation than we previously thought. as chart 3 shows, carbon prices rose materially in 2021 and 2022, peaking at around £100 per tonne of carbon dioxide ( co2 ) equivalent in the summer of 2022, a roughly 100 % increase in price on the previous year. [ 14 ] from 2021 onwards, the uk ’ s emissions trading scheme [ 15 ] saw a reduction in the supply of carbon permits, a decreasing share of permits being given out for free, and an expansion of sectoral coverage ( over the 2021 to 2030 period ). this was around the same time as the increase in wholesale gas prices, which could also have contributed to this rise in carbon prices. these carbon costs are non - trivial in the sectors most exposed to the scheme, like the power sector. in 2022, during the peak of energy price shock, the wholesale price of gas was the dominant driver of high electricity prices. in 2024, however, carbon costs which amounted to roughly 50 % of the fuel costs for gas - fired

live in a quality environment. indeed, the overall objective of structural reform must be to raise the standard of living in a sustainable way for each of us today, and for generations to come. i believe that the diagnosis for the european economy is already well known. labour force mobilisation is relatively weak in europe - and this has certainly proved to be the case in belgium - while productivity gains have slowed down, despite remarkable scientific and technological progress. in the light of these observations, there has been a consensus for several years now - under the influence of work carried out notably by the imf, the oecd and the european commission - on the need to stimulate labour market participation, reinforce the quality of the labour force, improve the functioning of markets in goods and services, including financial services, and step up the innovation effort. this strategy was endorsed by the governments of the european union member states at the march 2000 european council in lisbon. i think we have to acknowledge that progress has been made, albeit at varying speeds from one country to another, but that there is also still a long way to go. european economies today are faced with many challenges. i am of course thinking of globalisation of the economy, demographic shifts and climate change. the current improvement in the economic climate must not be used as an excuse for postponing reforms ; on the contrary, it should be seen as an opportunity to put them into practice with even greater resolve. my expose will obviously not cover the whole issue of structural reform. owing to time constraints, i will not go into nonetheless important topics like education and innovation. in line with what has been suggested, i would like to illustrate the subject of reform with some concrete examples drawn from my country ’ s experience and pointing up encouraging progress, even though it is often still not enough. * * * first and foremost, in belgium ’ s case, reforms were carried out in areas where they were deemed most urgent. significant progress has been made towards improving the country ’ s public finance situation, which had become unsustainable in the 1980s, and with wage - setting, taking account of the need to remain sufficiently competitive, because belgium has such an open economy. apart from these characteristics that are peculiar to the belgian economy, reforms have also been started in the field of pensions and employment of the older age bands of the population. 1. on the public finance front, the results so far are quite satisfactory. belgium brought down its budget deficit from 8 p. c