, which was only visible to the mpc in real time. 15. this transmission occurred via the ofgem mechanism for setting the ‘ price cap ’ on uk household utility bills, as explained here ‘ energy price cap explained, ’ ofgem. 16. between september 2021 ( when i first joined the mpc ) and its peak at the end of august, the january future price of uk wholesale natural gas rose by a factor of eleven. 17. in the mpc ’ s forecasts, our initial technical assumption was that gas prices would follow a random walk ( in other words, they would stay at their then high level permanently ) and then shifted to assuming they would follow the ( downward ) path implied by market futures prices. 18. for a critical assessment of this approach, see beaudry, p., t. j. carter and a. lahiri ( 2022 ). ‘ looking through supply shocks versus controlling inflation expectations : understanding the central bank dilemma, ’ bank of canada working paper no. 22 - 41. 19. the bank of england employs a suite of wage and price models as part of the analytical machinery underpinning the mpc ’ s quarterly macroeconomic forecasts. these models capture variants of the phillips curve, with spot wage or price developments depending on measures of inflation and inflation expectations, as well as import prices and measures of economic slack. see, for example : speigner, b. ( 2014 ). ‘ long - term unemployment and convexity in the phillips curve, ’ bank of england working paper no. 519 and esady, v., b. speigner and b. wanengkirtyo ( 2023 ). ‘ revisiting the effects of long - term unemployment on inflation : the role of non - linearities, ’ bank of england working paper no. 1018. 20. see pill, h. ( 2023 ). ‘ uk monetary policy outlook, ’ speech by huw pill at the money market association of new york university, 9 january. 21. response to the bank of england ’ s decision maker panel ( dmp ) survey shed light on the potential for such changes in corporate pricing behaviour. the slides accompanying this talk illustrate these data. 22. this point has been well - articulated in the euro area context in a recent ecb blog : arce, o., e. hahn and g. koester ( 2023 ). ‘ how tit - for -

to have important negative effects on aggregate demand and, in turn, on the medium - term inflation outlook. while both monetary and fiscal policy may, in principle, counter the inflationary effects of energy costs, only the latter is able to directly influence these costs, also offsetting the loss in disposable income – at least in part and to the extent that it does not jeopardise debt sustainability – and limiting their impact on the economy. that said, the main response to what is essentially a tax cannot come from monetary policy, especially in the absence of a wage - price loop and with inflation expectations re - anchoring to the central bank ’ s objective. however, these issues emphasise the importance of swiftly designing a strategy, particularly at the european level, that, while in the short run helps to curb the unjustified spike in energy prices, on a more structural basis takes into consideration the issue of energy source diversification, energy storage and the identification of common resources for managing energy crises. it is a challenge that, today, goes hand in hand with the one posed by climate change and its resolution is essential also for avoiding uncontrolled and dangerous increases in the relative prices of fossil fuels. * * * the russian invasion of ukraine implies some very important changes in the economic outlook of the euro area and in the assessment of risks. further increases of energy prices will not only affect the short - term inflation outlook, but will also determine significant headwinds to domestic demand, while the announced sanctions and the sharp deterioration of russia ’ s economic conditions will weaken external demand and cause potential risks to financial stability. household and business confidence may be strongly shaken. this would result in a worsening of the prospects for gdp growth and, in turn, greater downside pressures to inflation in the medium - term, which could follow the large price increases observed so far and, perhaps, still to come over the rest of the year. the ecb staff has made some new baseline projections available – which were discussed by the governing council last week – built on the assumptions that disruptions to energy supplies and impacts on confidence are only temporary, while global supply chains are not significantly affected. overall, gdp growth is projected to 3. 7 per cent in 2022 and 2. 8 per cent in 2023, a downward revision of, respectively, 0. 5 and 0. 1 percentage points compared to december 2021. on the other hand, inflation is set to average 5. 1 per cent