suggested that unemployment has continued to fall back a little from its peak, it has not moved much. and nominal regular pay growth ( which strips out bonuses, but includes merit related increases in pay ) has remained subdued over the past year, averaging around 2 %. assuming that the potential growth rate of the economy has not been damaged by the financial crisis ( and there is no compelling evidence to suggest that it has ), then this level of wage growth would be too low to be consistent with the inflation target in the medium term. looking ahead, it is most likely that there will remain a reasonable margin of slack in the labour market, which should help contain any pressure on nominal wages and hence price inflation. but this is unlikely to persist indefinitely. historical analysis of the uk labour market shows that the longer individuals are unemployed, the lower their chances of getting a job become. hence, persistently high actual unemployment tends to be followed by an increase in the level of structural unemployment. theory and empirical evidence predict that the structurally unemployed exert less downwards pressure on wage inflation. major shifts in the pattern of employment – as we are likely to see from the shifts in growth from services to manufacturing, and from the public to private sector – tend to reinforce that effect. if structural unemployment rises sufficiently, then the downwards pressure on inflation from spare capacity will eventually start to dissipate. for now, contacts of the bank ’ s agents confirm that the margin of slack in the labour market should continue to restrain wage growth in the coming months. in my view, that should continue for the next few years, even if structural unemployment begins to rise : the latter is a relatively slow process. given the inflation outturns so far in 2011 and the prospects for nearterm inflation outlined in the may inflation report, the squeeze on household real incomes is likely to be intensifying in the short term. overall, it could be quite some time before we start to see rising real take - home pay. the marked decline in household confidence since the start of the crisis might also have played a role in the weakness of consumer spending during 2010. for a given level of income, households may decide to spend less ( and hence save more ) if they are uncertain about the outlook for the economy and, especially, about the security of their job. although survey measures suggest that households ’ unemployment expectations have fallen slightly, bis central bankers ’ speeches the fiscal consolidation now underway might encourage greater precautionary savings among some households – indeed,

production. third, by their very nature, economic frameworks can only provide a summary description of the economy and thus do not incorporate all relevant information. in particular, some information is not easily integrated into the framework used to produce the projections or may change after they are finalised. fourth, expert views are inevitably incorporated into projections and there can be good reasons at any moment of decision - making to deviate from the particular views or approaches on which they are based. the two - pillar approach chosen by the eurosystem - including a prominent role for money as the first pillar - is, to some extent, a reflection of these general limitations of forecasts and projections. i should stress that, because of these limitations, the second pillar of the ecb ’ s strategy also includes other forms of analysis in addition to macroeconomic projections. first, the ecb ’ s projections are cross - checked and compared with forecasts produced by others, such as international organisations and private sector entities. second, the forward - looking information and expectations embodied in financial prices and yields is thoroughly analysed and evaluated. this information can also be compared with the staff projections. finally, any information that is not contained in the staff projections for practical or timing reasons - such as the latest available outturns of certain data series must also be incorporated into the overall assessment. developments in individual indicators are also closely followed outside the framework of the forecasting exercise. it follows from this discussion that the governing council does not use its staff projections as the main tool for organising and communicating its assessment. rather, the governing council evaluates them alongside - and compares them with - many other pieces of information and forms of analysis organised in the two - pillar framework. in the context of the ecb ’ s strategy, macroeconomic forecasts and projections therefore play an important - albeit limited - role. two important points follow from the role of projections in the ecb ’ s strategy and the procedures used to produce projections within the eurosystem. first, the projections are produced by staff experts and do not embody the policy judgement of the governing council. they therefore represent one input into the policy - making process and not the outcome of the governing council ’ s deliberations. the governing council must exercise a policy judgement in evaluating the projections it receives, alongside all other analyses, when drawing implications for policy decisions. second, since policy decisions are based on a broad range of analyses conducted under the two pillars of the ecb ’ s monetary