fact successfully weather the commodity price squall, which blew itself out quite quickly - though oil prices have recently been something of an exception. and the economy slowed during 1995. but we are now seeing a new and freshening wind blowing in particular from the household sector of the domestic economy. a sharp pick - up in the rate of growth of the money supply in 1995 provided an early indication that demand growth was likely to accelerate. and money supply growth has remained strong throughout the whole of the past year. faster growth of consumer spending became evident in the first half of 1996 and has been sustained. and from the middle of last year this began to feed through into output - which was initially held back, and is possibly still being affected by a run - down of stocks. now the fact is that no - one can tell you with any great confidence just when the increase in demand is likely to begin to create economic imbalance and spill over into rising inflation. but we can be reasonably certain that money supply growth at around 9 - 10 % a year, as we have seen it now since the beginning of last year, and growth in consumer spending at nearly 4 % a year, as we have seen over the last year, cannot be sustained for long consistently with the government ’ s inflation target in the medium term. and there are signs in the recently more rapid tightening of the labour market and in the gathering recovery in the housing market, for example, that demand may be strengthening. that, essentially, is why the bank has been arguing that we will need at some early stage a modest pre - emptive tightening of monetary policy. it is true that there is no immediate sign of cost or price inflation at the early stages of the production - distribution chain ; and it is true in particular that the tightening labour market has not yet resulted in an acceleration of pay settlements or earnings. but these are backwardlooking data. if we are to maintain that happy position, we need to anticipate what is to come, and begin to moderate the pace of the upswing before the evidence of imbalance comes through into the statistics. two years ago my message to you was that we needed a stitch in time to save nine, which indeed we did. i bring you the same message again this evening. the position is however complicated on this occasion by the recent strength of the exchange rate. since the summer sterling has appreciated by just over 13 % in effective terms - by rather more against the major european curre

will take the decisions, all really appreciate the crucial importance of sustainable convergence to the success of the venture and that they do not see it just as a technical obstacle to their wider aspirations - i should like to think that. so, mr. chairman, some difficult decisions lie ahead. the period up to your next biennial dinner will be momentous. but that should not obscure the fact that our immediate economic prospects remain encouraging. i do not know of any serious economic forecaster who does not expect the economy to continue to grow over the next two year, or unemployment to continue to fall. the challenge is to ensure that we can still say that in two years ’ time.