programme ( pepp ) over the current quarter to be conducted at a significantly higher pace than during the first months of the year. we also confirmed our other measures to support our price stability mandate, namely the level of the key ecb interest rates, our purchases under the asset purchase programme ( app ), our reinvestment policies and our longer - term refinancing operations, as detailed in the press release published at 13 : 45 today. we stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term. i will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions. economic activity the economy rebounded in the second quarter of the year and, as restrictions are eased, is on track for strong growth in the third quarter. we expect manufacturing to perform strongly, even 1 / 3 bis central bankers'speeches though supply bottlenecks are holding back production in the near term. the reopening of large parts of the economy is supporting a vigorous bounce - back in the services sector. but the delta variant of the coronavirus could dampen this recovery in services, especially in tourism and hospitality. as people return to shops and restaurants and resume travelling, consumer spending is rising. better job prospects, increasing confidence and continued government support are reinforcing spending. the ongoing recovery in domestic and global demand is boosting optimism among businesses. this supports investment. for the first time since the start of the pandemic, our bank lending survey indicates that funding of fixed investment is an important factor driving the demand for loans to firms. we expect economic activity to return to its pre - crisis level in the first quarter of next year. but there is still a long way to go before the damage to the economy caused by the pandemic is offset. the number of people in job retention schemes has been declining but remains high. overall, there are still 3. 3 million fewer people employed than before the pandemic, especially among the younger and lower skilled. ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy in supporting the recovery. in this context, the next generation eu programme has a key role to play. it will contribute to a stronger and uniform recovery across euro area countries. it will also accelerate the green and digital transitions and support necessary structural reforms that lift long - term growth. inflation inflation was 1.

9 per cent in june. we expect inflation to increase further over the coming months and to decline again next year. the current increase is largely being driven by higher energy prices and by base effects from the sharp fall in oil prices at the start of the pandemic and the impact of the temporary vat reduction in germany last year. by early 2022, the impact of these factors should fade out as they fall out of the year - on - year inflation calculation. in the near term, the significant slack in the economy is holding back underlying inflationary pressures. stronger demand and temporary cost pressures in the supply chain will put some upward pressure on prices. but weak wage growth and the past appreciation of the euro mean that price pressures will likely remain subdued for some time. there is still some way to go before the fallout from the pandemic on inflation is eliminated. as the economy recovers, supported by our monetary policy measures, we expect inflation to rise over the medium term, although remaining below our target. while measures of longer - term inflation expectations have increased, they remain some distance from our two per cent target. risk assessment we see the risks to the economic outlook as broadly balanced. economic activity could outperform our expectations if consumers spend more than currently expected and draw more rapidly on the savings they have built up during the pandemic. a faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. but growth could underperform our expectations if the pandemic intensifies or if supply shortages turn out to be more persistent and hold back production. financial and monetary conditions the recovery of growth and inflation still depends on favourable financing conditions. market interest rates have declined since our last meeting. financing conditions for most firms and households remain at favourable levels. 2 / 3 bis central bankers'speeches bank lending rates for firms and households remain historically low. firms are still well funded as a result of their borrowing in the first wave of the pandemic, which in part explains why lending to firms has slowed. by contrast, lending to households is holding up. our most recent bank lending survey shows that credit conditions for both firms and households have stabilised. liquidity remains abundant. at the same time, the cost for firms of issuing equity is still high. many firms and households have taken on more debt to weather the pandemic. any worsening of the economy could therefore threaten their financial health, which could trickle through to the quality