output gap is also judged likely to be significantly less persistent, lasting only around 18 months. these compositional effects were discussed in the february 2021 monetary policy report. broadbent ( 2021 ). all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice chart 11 : demand and prices across sectors ( a ) source : ons and bank calculations. notes : a ) data points refer to goods and services that have been predominantly affected by a demand shock. these are spending categories where consumption and inflation have both increased, or where they have both decreased. categories affected by changes in energy prices and those where prices are regulated are excluded. air travel is also excluded. dashed line represents the line of best fit. ( b ) changes in inflation rates between the three - month average to february 2020 and october 2020, measured as the number of standard deviations from their 2012 – 19 average. c ) consumption growth over the four quarters to 2020 q3. these differences in output gap profile seem plausible. the fall in output after the covid crisis was atypically sharp due to restrictions being imposed. so we might expect an atypically sharp recovery in activity as restrictions are eased. nonetheless, whether these judgements on the output gap come to pass depends, ultimately, on the pace at which demand in the economy returns and the accompanying response of the economy ’ s supply potential. let me discuss those two issues in turn. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice chart 12 : output gap – global financial and covid crises compared per cent - 1 - 2 - 3 - 4 - 5 t = 0 t + 5 t + 10 t + 15 quarters gfc covid ( forecast ) source : bank of england. ( b ) money and money spending i will discuss in some detail the components of private demand, consumption and investment, at a future event. but as after the global financial crisis, some useful insights into possible future paths for aggregate demand and aggregate money spending is provided by looking at developments in the banking system. exceptional amounts of central bank money have once again been created during the covid crisis to maintain borrowing costs at low levels. this additional qe is running at around $ 5 ½ trillion so far and rising. 15 globally, the amount of qe undertaken during the crisis is already rapidly catching - up with the

not weaker, balance sheets, at least for the average household and company. this is likely to increase, not reduce, their willingness to take risk. low risk appetite after the global financial crisis was a correction of the excessive risk - taking that took place in the run - up – an overshoot followed by an undershoot. the covid crisis has seen the exact opposite. people ’ s appetite to spend and socialise has been artificially suppressed. this increases the chances of an overshoot as restrictions are removed, as after previous episodes of suppressed animal spirits. risk - switching is, for me, more likely than risk - scarring. conclusion at present, inflation pressures in the uk and globally are subdued. in the uk, inflation remains well below its 2 % target, as it is in the us and the euro - area. in all three countries, inflation expectations among consumers, businesses and financial markets appear to be well - anchored around the inflation target, although they have fluctuated recently. the next 12 months will see a rapid change in measured inflation. in the uk, it is likely to return to its target by the middle of the year, as the one - off effects of covid wash out of annual inflation rates. thereafter, the mpc foresees uk inflation remaining around its target level. the risks around this projection are, in the mpc ’ s judgement, large but balanced. that these risks are large is fully justified by the high degrees of uncertainty that exist around the forces driving inflation in future, as i have discussed here. but given likely trends in these factors, my judgement is that the risks to inflation in the uk are skewed to the upside, rather than being balanced. certainly, there are good grounds for believing future inflation may behave very differently than in the past. my judgement is that we might see a sharper and more sustained rise in uk inflation than expected, potentially overshooting its target for a more sustained period, as resurgent demand bumps up against all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice constrained supply. financial markets globally have begun pricing this possibility recently, with measures of inflation expectations rising in the us and, to lesser extent, euro - area ( chart 17 ). chart 17 : tail risk in us and euro - area inflation expectations. source : bloomberg finance l. p and bank calculations. note : tail risk is the option -