the level of demand for goods and services is still higher than the ability of the economy to produce those goods and services. these are our central forecasts and there is substantial uncertainty around them, more so the further out the forecasts are. recognising this, we highlighted three key risks in the statement on monetary policy : more excess demand in the economy at present than currently assessed ; consumption growth in the future stronger or weaker than expected ; and the labour market deteriorating by more than expected. the statement provided some scenarios to demonstrate how different paths for the economy might affect the outcomes for inflation and employment. the scenarios show that if consumption or the labour market are weaker than expected, inflation could return to the target band more quickly and the unemployment rate could rise more sharply. and the reverse could occur if consumption and the labour market are stronger than expected. these scenarios are important because we know that economic activity and inflation could be much stronger or weaker than implied by our central forecasts. so we need to understand the implications for the economy and how monetary policy will have to respond if things turn out differently. my colleague andrew hauser gave a considered speech on the issue of uncertainty on monday. the key point was that we know the future is uncertain and that we therefore need to be humble in our forecasts, be willing to learn from our errors, and use a diverse range of models and qualitative intelligence, as well as internal and external challenge. and we need to respond as the economy evolves. the board is conscious of this, hence its commitment to be driven by the data and to adjust its assessment as necessary. the board is of the view that it currently has the balance right between reducing inflation in a reasonable timeframe and maintaining the gains in the labour market. ultimately, our full employment goal is not served by letting inflation stay above target indefinitely. so the board remains focused on the potential upside risks to inflation. before i finish, i want to say a few words on the payments system and issues in the cash distribution system. 3 / 4 bis - central bankers'speeches payments system the parliament is currently considering some important amendments to the payment systems ( regulation ) act 1998 ( psra ) that will enable us to promote safety, efficiency and competition across all players in the payments ecosystem. once the reforms are passed, we will undertake a comprehensive review of our retail payments regulation. this review will consider the appropriateness of our regulatory settings and principles, and how to apply them to emerging players and

, the same goes for the abundant liquidity in asset markets that preceded the crisis. of course, persistently strong demand for financial assets – crudely, rising prices – created liquidity. but, beyond that, the willingness and terms on which “ market - makers ” and traders underpinned liquidity depended on generous access to credit for financing inventory and positions. and the ultimate private sector providers of such credit are always the commercial banks. 6 so commercial banks are special. they are special because their deposit liabilities are money. but they are also inherently fragile. first, as monetary institutions, the liquidity insurance they provide, via demand deposits and committed on - demand lines of credit, entails large mismatches between the maturities of their liabilities and assets ( actual and contingent ). the accompanying conversion of liquid savings into illiquid loans to households and firms benefits society. but it also exposes the banks to big liquidity risks. given a first come - first served system of redemption for retail and wholesale deposits, that creates the risk of runs. secondly, a deposit - taking institution is leveraged, even if it does not fund itself in wholesale markets : retail deposits are debt. so banks ’ capital adequacy can quickly be imperilled by a fall in asset prices. in that sense, the “ liquidity ” and “ solvency ” explanations of the current crisis are inseparable. especially in a world in which banks ’ trading portfolios are marked to market, a drying up of liquidity in markets brings about a fall in asset prices, and so a depletion of banks ’ net worth. all that underlines just why our predecessors placed such great weight on official interventions to maintain the safety and soundness of banks. 7 if anyone doubted it, this crisis underlines how problems of funding liquidity, asset - market liquidity and solvency are intertwined. and those dimensions of a systemic crisis map into the authorities ’ capability, in principle, to be a lender of last resort ; a market maker of last resort ; and a provider of capital of last resort. central bank provision of liquidity insurance, and lolr bagehot ’ s famous dictum, in lombard street, was that, to avert panic, central banks should lend early and freely ( ie without limit ), to solvent firms, against good collateral, and at “ high rates ”. one of his great themes was that the bank of england should acknowledge its