few decades reflects deep underlying factors on the supply side of the economy. as these underlying factors – trends in technology and demographics – only move slowly, it is not unreasonable to expect that r * will remain low. this means that, even as we now respond to rising inflation by raising bank rate, interest rates will not necessarily have to return fully to, and remain around, the higher levels they once had. but let me add a caveat : “ it ’ s important to note that forecasting the future path of r * is challenging and subject to a significant degree of uncertainty. economic developments and policy decisions can have unpredictable and complex effects on the economy, and it is difficult to predict their outcomes with complete accuracy. ” this was not said or written by an economist of the human sort. this is a caveat added by chatgpt. the ‘ artificial intelligence ’ underlying it reminds us that technology sometimes progresses in leaps, which can lead to a sudden emergence of productive investment opportunities across the global economy. new rounds of technological revolution are amongst the factors that could shift up global r *. monetary policy would have to move with it. so even if monetary policy is neutral in the long run, long - run supply does affect monetary policy by anchoring the level for interest rates. over the short term, moreover, the actual equilibrium interest rate, r *, will fluctuate around the trend level, r *, driven by shorter - term influences from both demand and supply. this is what matters for monetary policy here and now. why? because r * is the rate at which demand is in line with supply so that there is no output gap – neither excess demand nor excess supply in the economy. responding to shifts in r * is what helps keep inflation close to target. this does not mean that monetary policy should always align bank rate exactly to r *. sometimes, monetary policy faces trade - offs between inflation and the balance of supply and demand. but it does mean that supply matters for monetary policy also in the short run. by determining the level of demand the economy can sustain without generating excess bank of england inflationary pressures, it affects the appropriate level of interest rates, effectively by setting the speed limit for the economy. and when shocks drive inflation away from target in the way we have seen, monetary policy responds by steering demand to a level – relative to supply – that ensures that inflation returns to target sustainably. monetary policy cannot affect this level of supply. but the level of supply will

’ s invasion of ukraine. this appalling act had a massive impact on energy prices last year, and has substantially affected other prices, notably food. for a variety of reasons, particularly in energy markets, those effects are now unwinding. it is primarily for this reason that we expect to see a sharp fall in inflation during the course of this year, starting probably in a couple of months or so from now. bank of england growth in the economy has suffered too, as a consequence of the sheer scale of the hit to the terms of trade. there has been a very large impact on national real income, from which i am afraid there is no hiding. but there is better news on that front, the economy has been more resilient of late, helped by the sharp fall in energy prices. the same is true for the world economy more broadly. what does this mean for monetary policy looking forwards? the remit is clear. the adjustment and response to the shocks we have experienced must return cpi inflation to the 2 % target sustainably. we must avoid these very large shocks leading to persistent inflation, and that is why we have raised the official interest rate eleven times, to 4. 25 %. recently, the evidence has pointed to more resilient activity in the economy, and likewise employment ; signs that nominal wage growth has been rather weaker than expected ; and two months in which there was first some downside news on inflation relative to our expectation and then a bit more upside news. this reminds us that the path of inflation will not be entirely smooth and cost and price pressures remain elevated. alongside all of this news, we have seen some big strains in parts of the global banking system emerge. assessing this would be another speech, which i am not going to make this evening – you will be relieved to hear. suffice to say that we believe the uk banking system is resilient, with robust capital and liquidity positions, and well placed to support the economy. we have a strong macroprudential policy regime in this country. with the financial policy committee on the case of securing financial stability, the monetary policy committee can focus on its own important job of returning inflation to target. we have to be very alert to any signs of persistent inflationary pressures. if they become evident, further monetary tightening would be required. with this in mind, the mpc ’ s response will be firmly anchored in the emerging evidence. thank you. i am grateful to ben