because persistent excess capacity puts downward pressure on inflation, raising the risk that we will continue to fall short of our inflation target. we have recently introduced three new measures of core inflation, each with its own strengths and weaknesses. these are not target variables. rather, they are analytical tools. they help us to see through shocks and give a better guide to what is happening to the underlying trend in inflation. in particular, they are much more correlated with excess capacity than total inflation is, simply because total inflation is constantly being buffeted by temporary price disturbances. our new measures of core inflation are all below 2 per cent presently, weighed down by excess capacity in the economy. in addition, food prices have been running below expectations in recent months, due in part to enhanced competition at the retail level, something we will continue to monitor. looking ahead, governing council expects inflation to move up to close to 2 per cent in the near term, mainly because of firmer energy prices. more importantly, our growth outlook would imply a narrowing of the economy ’ s excess capacity over the course of 2017 and into 2018. so in the absence of any new shocks we would expect all inflation measures to converge sustainably on 2 per cent in the latter part of our projection horizon. to conclude, in the context of a projection that is largely unchanged, the bank ’ s governing council judges that the current stance of monetary policy is still appropriate and maintains the target for the overnight rate at 1 / 2 per cent. governing council will continue to assess the impact of ongoing developments, mindful of the significant uncertainties weighing on the outlook. thank you for your attention. now, senior deputy governor wilkins and i would be happy to take your questions. 2 / 2 bis central bankers'speeches

ben s bernanke : the economic outlook testimony of mr ben s bernanke, chairman of the board of governors of the us federal reserve system, before the committee on the budget, us house of representatives, washington dc, 17 january 2008. * * * chairman spratt, representative ryan, and other members of the committee, i am pleased to be here to offer my views on the near - term economic outlook and related issues. developments in financial markets since late last summer, financial markets in the united states and in a number of other industrialized countries have been under considerable strain. heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil. notably, as the rising rate of delinquencies of subprime mortgages threatened to impose losses on holders of even highly rated securities, investors were led to question the reliability of the credit ratings for a range of financial products, including structured credit products and various special - purpose vehicles. as investors lost confidence in their ability to value complex financial products, they became increasingly unwilling to hold such instruments. as a result, flows of credit through these vehicles have contracted significantly. as these problems multiplied, money center banks and other large financial institutions, which in many cases had served as sponsors of these financial products, came under increasing pressure to take the assets of the off - balance - sheet vehicles onto their own balance sheets. bank balance sheets were swelled further by holdings of nonconforming mortgages, leveraged loans, and other credits that the banks had extended but for which well - functioning secondary markets no longer existed. even as their balance sheets expanded, banks began to report large losses, reflecting marked declines in the market prices of mortgages and other assets. thus, banks too became subject to valuation uncertainty, as could be seen in the sharp movements in their share prices and in other market indicators such as quotes on credit default swaps. the combination of larger balance sheets and unexpected losses prompted banks to become protective of their liquidity and balance sheet capacity and thus to become less willing to provide funding to other market participants, including other banks. banks have also evidently become more restrictive in their lending to firms and households. more - expensive and less - available credit seems likely to impose a measure of restraint on economic growth. the outlook for the real economy to date, the largest effects of the financial turmoil appear to have been on the housing market, which, as you know, has