these actions themselves have further promoted the very globalization that, interacting with advancing technology, spurred the deregulatory initiatives in the first place. the result of this process has been an advance and diffusion of technical change that has raised living standards in much of the world. the conceptual battleground has moved far from the stark terms of the earlier capitalist - socialist confrontations. the failed experiment in central planning in eastern europe and the soviet union after world war ii has largely muted the arguments of most ardent socialist planners. the debate has now shifted to the nature and extent of actions appropriate for governments to take in order to ameliorate some of the less desirable characteristics that are perceived to accompany unfettered competition. but unlike in much of the nineteenth century, little unfettered competition is actually practiced in today ’ s world. in large part, driven by the value standards of our societies that developed out of the great depression, some government regulation is practiced virtually everywhere. nonetheless, it has become generally understood that governmental actions often hinder incentives to investment by increasing uncertainties, boosting risk premiums, and raising costs. even among those who deride the more unbridled forms of capitalism, there is a growing awareness that many attempts to tame such regimes are not without cost in terms of economic growth and the average living standards of a nation. a recent manifestation of these costs can be seen in the lower level of high - tech capital investment in continental europe, on average, and in japan, relative to that in the united states. arguably, this outcome has resulted to an important degree from the particular legal structures and customs that govern labor relations in much of europe and asia. by choice over the decades, europe, for example, has endeavored to protect its workers from some of the presumed harsher aspects of free - market competition. to discourage layoffs, discharging employees was made a difficult and costly process in comparison with that in the united states. by law and by custom, american employers have faced many fewer impediments in recent years to releasing employees. this difference is important in our new high - tech world because much, if not most, of the rate of return from the newer technologies results from cost reduction, which on a consolidated basis largely means the reduction of labor costs. consequently, legal restraints on the ability of firms to readily implement such cost reductions lower the prospective rates of return on the newer technologies and, thus, the incentives to apply them. as a result, even though

inflation pressures have edged up. as the economy recovers further, and supported by our monetary policy measures, we expect underlying inflation to rise over the medium term. this increase is expected to be only gradual, since it will take time for the economy to return to operating at full capacity, and therefore wages are expected to grow only moderately. measures of longer - term inflation expectations have continued to increase, but these remain some distance from our two per cent target. the new staff projections foresee annual inflation at 2. 2 per cent in 2021, 1. 7 per cent in 2022 and 1. 5 per cent in 2023, being revised up compared with the previous projections in june. inflation excluding food and energy price inflation is projected to average 1. 3 per cent in 2021, 1. 4 per cent in 2022 and 1. 5 per cent in 2023, also being revised up from the june projections. risk assessment we see the risks to the economic outlook as broadly balanced. economic activity could outperform our expectations if consumers become more confident and save less than currently expected. a faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. if supply bottlenecks last longer and feed through into higher than anticipated wage rises, price pressures could be more persistent. at the same time, the economic outlook could deteriorate if the pandemic worsens, which could delay the further reopening of the economy, or if supply shortages turn out to be more persistent than currently expected and hold back production. financial and monetary conditions the recovery of growth and inflation still depends on favourable financing conditions for all sectors of the economy. market interest rates have eased over the summer, but reversed recently. overall, financing conditions for the economy remain favourable. 2 / 3 bis central bankers'speeches bank lending rates for firms and households are at historically low levels. lending to households is holding up, especially for house purchases. the somewhat slower growth of lending to firms is mainly due to the fact that firms are still well funded, because they borrowed heavily in the first wave of the pandemic. they have high cash holdings and are increasingly retaining earnings, which reduces the need for external funding. for larger firms, issuing bonds is an attractive alternative to bank loans. solid bank balance sheets continue to ensure that sufficient credit is available. however, many firms and households have taken on more debt during the pandemic. a deterioration in the economic outlook could threaten their financial