do not mesh. but it is not easy to see how they will coalesce into a single image. the operation of monetary policy is often said to be more of an art than a precise science. but none of us can claim to be a michelangelo. so let me take you briefly through three particular areas of uncertainty we face, in the hope that, when we get to the discussion session, you will be able to add definition and colour to my half - formed sketches. first, the slowdown in the us is an important area of uncertainty because, if the downside risk of a deeper or more prolonged slowdown materialises, we would face slower growth and lower inflation in the uk than we are projecting on our central projection. that would, of course, be grounds for us to contemplate further easing in our monetary stance. that follows because our inflation target is, importantly, a symmetrical one : we need to be just as ready to contemplate easing if we see evidence on the downside of the economy underperforming, and hence the likelihood of inflation running over time materially below our 2 1 / 2 % target, as we would be to exercise restraint on the upside. we take this symmetrical nature of our responsibility very seriously and there is undoubtedly a significant risk that the us slowdown could have a material dampening effect on uk activity. analysts have used a large part of the alphabet to try to describe various views of how the us economy may develop. i am not sure that i find any of these pictograms particularly helpful, not least because people are sometimes pretty vague about vital details like the dimensions of the letter they favour or the angle of its arms : a big v, after all, can feel awfully like a u when you are down the bottom and trying to find your way up again. the short answer is that none of us can pretend to know precisely how the story will develop. it will be important to keep an open mind and be prepared to adapt our assessment in the light of actual events. but in doing so, there are four considerations that i would suggest are particularly germane to this first area of uncertainty. first, we need to recognise that we are talking of slowdown in the us from what have been extremely buoyant rates of growth, maintained for several years past, as the us economy has reaped the benefits of the application of information technology and the rise in productivity growth that had engendered - the new

target for most of the past two years. this is not in itself a particularly powerful argument, because the undershoot has been marginal and probably owes a great deal to the unexpected strength of sterling. indeed, before we began to track a little below the target, we had for around two years been tracking above it. nonetheless, the strength of demand in the economy does seem to have exercised less upwards pressure on prices over the past two years or so than we would have expected from earlier experience ; and this applies both to prices of goods sold in the product market and to pay and earnings in the labour market. why is this? in the product market, one factor may be greater competition, which has caused producers and retailers to accept lower margins. another factor may be new forms of marketing and retailing, for example the spread of e - commerce. this may have cut the cost of distribution, and it may also have intensified consumers'awareness of prices and their resistance to price increases, by enabling them to compare prices more easily. another possibility is that we may be seeing an increase in productivity growth, perhaps stimulated by the pressures many businesses faced from the strength of sterling, and perhaps also arising from the application of it possibly the beginnings of the arrival of the new economy from across the atlantic. in the labour markets, reforms which have made possible greater labour flexibility, and competitive pressures which have stimulated firms to adapt more quickly to changes in their business environment, may underlie the more benign performance of real earnings growth. more widely, the greater stability the economy has enjoyed in recent years from the medium - term framework that governs both fiscal and monetary decisions may, by stabilising inflationary expectations at a low level, have made it less attractive, and more risky, to try to raise prices even when demand is strong, and may also have enabled industry and commerce to plan their business activities on a sounder and more forward - looking basis. there is plenty of evidence that all these factors are, in varying degrees, at work in the uk ; and they offer the prospect of genuine improvements in the functioning of the economy. but the question is - on what scale, and are the improvements temporary or here to stay? we take considerable care to try to factor these developments into our decisions on interest rates, but the difficult judgment is to assess how much faster the economy can grow as a result without jeopardising our inflation target. my own view is that supply - side improvements are delivering benefits, but