largest contributor to uk inflation by some way. there is an economic cost to the war, and we all have to recognise that, but at the bank it will not deflect us from setting monetary policy to bring inflation back to the 2 % target. the last disturbance is a domestic one. the uk labour force has shrunk over the last two years, and this is contributing to inflationary pressure due to the difficulty of recruiting. it is important to understand exactly why the labour force has shrunk, why inactivity – those not working and not seeking to – has risen, and of course what we might expect to see in the future. have more people retired than was expected, has long - term illness risen permanently, and how many people may return to the labour force and over what time? a one percentage point reduction in the labour force may not sound much, but with a working - age population of around 40 million it is a lot of people. with such numbers, the shrinkage in the labour market adds an inflationary impulse on top of energy and international goods prices. and central to the assessment of the outlook for monetary policy, it increases the risk that the inflation that has come to us from abroad gets embedded in more persistent domestic inflationary pressures. let me draw all of this together, and pull out the implications for monetary policy. the big external shocks – from russia and supply chains – account both for a large part of the inflation overshoot above target and for the squeeze on real incomes. my sense of the latest data is that the supply chain / goods shock has started to ease, but the russian impact – particularly on natural gas prices in europe is going the other way as we look ahead to the winter. the effect of these shocks has been to increase the cost of things we import relative to things we produce domestically. this is a very large shock to our national real income. i think we can already see the effects, with the economy slowing ( i would urge caution in interpreting the may gdp number as strong – given the changed pattern of public holidays ). monetary policy has to be set taking into account the scale of this shock to real income, while keeping our focus on inflation and inflation expectations. returning inflation to its 2 % target sustainably remains our absolute priority. but we recognise a trade - off in a situation of high inflation and weakening growth. in my view this trade - off explains why we have raised bank rate progressively since last december in increments

both acted to counter the cyclical downturn, reinforcing one another even as they were implemented independently. moreover, the response had to be sustained because of the sheer scale of the uncertainty around the impact of further waves of covid. it is worth recalling that the key aim of policy was to support businesses and households through the crisis, limiting lasting damage to the economy – which could have been compromised by a premature withdrawal of stimulus. without that policy support, the economy today would be in a much worse position. moreover, policy is necessarily made in real time, not in hindsight. remember that we started with no functioning vaccine and the previous average time to implement one for viruses of this nature was 10 years. the second disturbance came with the recovery from covid. it was the first of the three big supply disturbances of the last year or so. let me start by putting it into context. uk gdp recovered quite rapidly from the precipitous drop of the initial covid period, but it did not soar away. that ’ s very different to the pattern of the us economy for instance. put another way, in the uk we have had two years with very little growth overall. the story of the recovery from covid in terms of inflation had a global dimension. in many advanced economies, the pattern of demand shifted from services to goods, most notably in the us. these goods are much more traded than services, and this put pressure on global supply chains. that pressure was further affected by issues in china with the so - called zero covid policy, and the impact this had on traded goods prices. the third disturbance has been caused by the actions of russia in the build up to and subsequent illegal invasion of ukraine. this is now the largest shock – concentrated in energy and some food prices. it is hitting the least well off hardest because they, necessarily, spend more of their income on essentials, notably food and energy. recently some of the most outrageous nonsense i have ever heard has been spouted by the russians, namely that the current global economic problems are caused by sanctions against russia, not by russia ’ s invasion of ukraine. this is utter rubbish. we cannot accept this assault on democratic systems and values and on the security of the european continent. economic prosperity is, and will continue to be, built on the foundations of democracy and security. these values are the bedrock of open economies and financial systems, and russia has betrayed them. the russian shock is now the