evolving as new economic data are published and analysed. the recent discussion of uk monetary policy – and the absence of unanimity in mpc votes – should be understood in that light. in today ’ s talk, i aim to flesh out the framework established in the mpc ’ s recent forecasts and reports for assessing how to identify and follow this narrow path. [ 6 ] these forecasts and reports represent the ‘ best collective judgement ’ of the mpc as a whole. but i will also take this opportunity to flag where i differ from that ‘ best collective judgement ’. in particular, i ’ d like to emphasise from the outset my preference for a ‘ steady - handed ’ approach to monetary policy – one which focuses on the slower moving and more persistent trends in the data rather than responding to each individual data release. as i have discussed in a number of previous talks, [ 7 ] i am sceptical that we know enough : about the state of the economy ; ( 2 ) about key features of the economy ’ s structure and behaviour ; ( 3 ) about the intrinsic properties of inflation dynamics ; or ( 4 ) about the monetary policy transmission mechanism, to be able to use monetary policy to ‘ fine tune ’ economic and price developments. and i worry that attempts to implement any such fine tuning will introduce more volatility into inflation and the broader economic system, rather than support the stabilisation at target that we seek. of course, there are occasions – especially in the face of financial disturbances and market dysfunction – when central banks may need to step in to offer support quickly and sizeably to support financial stability and monetary policy transmission. we have seen examples of this of late, not least during the ‘ dash - for - cash ’ episode at the outset of the covid pandemic in march 2020. and large macroeconomic shocks may require large monetary policy responses. again, recent experience offers some examples. but, in my view, as a general rule monetary policy responses to macroeconomic developments need to be measured and persistent if they are to be effective. such an approach ensures that changes in bank rate are transmitted along the yield curve to the longer - term rates more relevant to spending and pricing decisions, while also allowing learning about the impact of policy decisions ahead of making irretrievable mistakes in one direction or the other. viewed through this lens, the decision to raise bank rate by 25bp earlier in the month should be seen as part of a broader transition

’ s agents ’ reports from corporate contacts, further second round effects were included in the may projection. chart 5 : unemployment continues to fall but inactivity remains higher than prepandemic ( a ) sources : ons and bank calculations. ( a ) data from the lfs. employment includes employees and self - employed. changes do not sum to 0 as the population is estimated to have increased during the period. chart 6 : indicators of pay growth are elevated sources : hmrc, ons and bank calculations a tight labour market is accompanied by resilience in business confidence. in line with evidence from the bank ’ s decision maker panel survey, this may reflect business - to - business pricing power within supply chains still suffering from supply disruptions. after all, within a single supply chain, one firm ’ s sourcing problem is another firm ’ s resilient demand. supporting this view, the banks ’ agents report that a further strengthening of margins is likely, especially in firms that are not directly facing consumer demand. chart 7 : pmis suggest business confidence is resilient ( a ) sources : s & p global / cips. ( a ) a reading of above 50 indicates positive change on the previous month while a reading below 50 indicates negative change. data for april 2022 are flash estimates. chart 8 : banks ’ agents report further strengthening in margins is likely ( a ) question : ‘ to what extent have you already passed through higher costs to prices? ’ the influence of monetary policy on the back of this assessment, the current momentum in uk headline inflation developments is substantial. but, given lags in the transmission of monetary policy to price developments, high inflation today does not, of itself, justify tighter policy today. rather monetary policy has to be forward looking, calibrating the policy stance to be appropriate at a horizon of 18 months to two years, once the transmission lags unwind. and that is where the mpc ’ s may forecast gets more complicated. rises in international goods and energy prices pose a particular challenge to uk monetary policy. not only do they exert a strong direct influence over inflation as i ’ ve discussed, but – since the uk is a net importer of food, energy and goods – they also imply a squeeze on the real incomes of uk households. simply put, the price of what the uk is selling has fallen relative to what the uk is buying, leaving uk residents worse off. so the mpc forecasts that, as