to cases where we know the potential outcomes and the probability of them happening. uncertainty refers to cases where we don ’ t know the possible outcomes ( or their probabilities ) in advance. another broad approach has been suggested by kay and king ( 2020 ) in their book on ‘ radical uncertainty ’. they argue that successful decision - making under such uncertainty relies on collaborative processes, judgement, close attention to reliable data, and the use of narrative, rather than an overreliance on economic models. bank of england i want to frame my observations by going back twelve months. at that point the economy was recovering from the worst of the covid pandemic and cpi inflation had started to rise. market expectations showed a 50 : 50 chance that bank rate would be increased from 0. 1 % to 0. 25 % at the upcoming december 2021 mpc meeting. source : bloomberg l. p., tradeweb and bank calculations notes : realised volatility is a 5 - day moving average of the difference between the highest and lowest 2 - year nominal uk government bond yield within a day. the mpc had recently published its november 2021 mpr, summarised in table 1. the mpc forecast that gdp would continue to grow, though at a slowing rate, at 2. 9 % in the year to 2022q4. cpi inflation would rise in the short term reaching a peak of 4. 3 % in 2021q4, before falling back to 3. 4 % by 2022q4 and be close to the 2 per cent target by bank of england 2023q4. other forecasters were predicting a similar outlook for activity, although their average cpi inflation forecast for 2022q4 was somewhat lower at 2. 7 % 2. in its november 2021 mpr, the mpc stressed that there was a high level of uncertainty around the outlook, including for energy prices. the bank ’ s forecasts at the time were conditioned on the declining futures curves for energy prices for the first six months of the forecast but were assumed flat thereafter. on that basis the mpc concluded that “ while the risks around energy prices are judged to be to the downside those towards wage growth are judged to be skewed to the upside ”. fast forward a year and the november 2022 mpr forecast shows just how much has changed for the worse ( table 2 ). inflation is now expected to peak at 10. 9 % in 2022q4, over three times higher

##pi, us cpi and euro - area hicp measures of inflation respectively. uk rpi is due to be aligned with cpih from february 2030, which will affect the pricing of the uk five - year, five - year measure. since 2000, annual cpih inflation has averaged 90 basis points lower than rpi inflation. in a higher inflation environment, some research has found that the distribution of inflation expectations can also matter. views differ about the salience of this kind of historical research for the uk ’ s current situation but it does suggest that during periods of high inflation, such as those experienced in the us in the 1970s, the change in the standard deviation and skew of expectations in survey results might signal risks to a de - anchoring of inflation expectations, even if the median doesn ’ t change9. in the uk, we have seen some signs, from the bank ’ s market participants survey10 and the decision maker panel survey of businesses, of expectations becoming more skewed to the right over 2022 relative to previous years, with a larger share of respondents expecting higher inflation in the medium term. there is a range of views among members of the mpc as to whether developments in inflation expectations and the potential for them to become de - anchored add to the other risks around the inflation outlook11. my concerns about the emergence and embedding of an inflationary mentality has been one of the factors contributing to my minority votes for a faster pace of tightening, first in february and again in september this year. see the burst of high inflation 2021 - 22 : how and why did we get here, reis june 2022 and losing the inflation anchor, reis oct 2021 see market participants survey results – november 2022 | bank of england inflation expectations, inflation persistence, and monetary policy strategy – speech by catherine l. mann | bank of england bank of england market reactions to uk monetary and fiscal policy global financial markets have been increasingly volatile over the last year, in particular as markets have responded to increased evidence of persistence in inflation and central banks ’ policy actions and communications in reacting to it. the last year has been characterised by large moves in exchange rates and falls in risky asset prices but the repricing of government bonds and of expectations for monetary policy have been particularly striking. significant uk specific factors emerged in september and october, which have been covered in detail elsewhere12. the uk policy premia which opened up have now disappeared. the cumulative increase in yields on uk 10 gil