exchange rate volatility, or they can aim to maintain exchange rate stability, accepting that that may destabilise their respective domestic economies. these are the horns of the uncomfortable dilemma we have been on. i have no doubt, in terms of the macro - economy as a whole, that we have been right to persist in aiming to stabilise our domestic economy - the facts speak for themselves. it is possible - even perhaps likely - that our dilemma may now become less acute, at least for a time as the euro strengthens to a more sustainable level. our best chance of maintaining that happier position - if indeed it occurs - is to persist in domestic stabilisation and structural reform alongside our european partners, but it is difficult to be confident at this stage that the dilemma will not re - emerge.

##istic levels against the exaggeratedly weak euro - will tend to reverse the downwards pressure that it had previously been exerting on retail prices. domestic demand growth will need to moderate to compensate for that although there are some tentative signs in the recent data that it may be beginning to do so. the sustained tightness in the labour market could still put upwards pressure on earnings growth and pay settlements - though the latest data are somewhat reassuring for the time being. we can ’ t be confident about the effects in this country of the new economy - though we remain open - minded. nor can we be confident of either the extent or the likely persistence of what appear to be exceptional downward pressures on retail margins. we don ’ t know for sure what is likely to happen to the oil price - and so on. we will - in the best central banking tradition - need to be eternally vigilant. but for all the uncertainties, the overall prospect for the economy as a whole over the next couple of years - in my view, but it is a view that i think is broadly shared by most of the other members of the monetary policy committee, is for continuing steady growth, at or a bit above its longer - term trend, for continuing high employment, and for continuing low inflation at around the chancellor ’ s target. and that, too, my lord mayor, is not a bad prospect either. our problem - and it has been a persistent headache over the past two or three years, as i have repeatedly tried to explain on earlier occasions - is the imbalance between the domestic sectors of the economy, which have by and large been doing pretty well, and those that are heavily internationally exposed. those sectors have had a tough time over the past few years - what with the global economic slowdown and particularly more recently with the seemingly remorseless rise of sterling against the euro. that went well beyond constructive pressure to improve efficiency to destructive agony. we ’ ve been only too well aware of that - we could hardly not have been ; and we ’ ve not been insensitive to it either. we have consistently taken account of the unexpectedly persistent strength of the exchange rate in both our forecasts and in our monetary policy judgements. but when you come right down to it, for as long as economic conditions between one country and another diverge, whether for cyclical or structural reasons, there is a choice. countries can either aim to stabilise their respective domestic economies, accepting that that may mean