further in the near term clearly there are risks around these judgements. rebuilding inventories and clearing backlogs will take time. so there may in some cases be continuing pressure on suppliers of wholesale goods even after ( and if ) growth in final demand from consumers falls back. in addition it ’ s possible that not all the rises in wholesale goods prices that we ’ ve already seen have yet been passed on to the retail level, at least in the uk ( chart 16 ). if so, then annual inflation in retail goods – both in aggregate and excluding energy – is likely to rise further before it starts coming down. chart 16 : goods price inflation likely to rise further in the months ahead sources : ons and bank calculations. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice the third reason for a degree of caution is that these mismatches between global supply and demand for goods aren ’ t the only ones, it seems. there are also signs of the same – excess capacity in some areas, excess demand in others – within the uk economy. and although they ’ re less startling than in some areas of traded goods, it may take longer, if they persist, to accommodate via matching shifts in supply. it ’ s these more domestic mismatches we ’ ll have a look at now. domestic mismatch and the uk labour market despite the prevailing lockdown, signs of a recovery in the uk labour market began to appear early this year. surveys suggest employment stabilised in february. the numbers of unemployed and on furlough peaked at around the same time. job vacancies, which had actually reached a low during the first lockdown, began to rise sharply. all this seems of a piece. yet in some ways it ’ s odd – odd, at least, if you think of employers as identical and employees as a similarly homogeneous group – that vacancies and the use of the furlough scheme should co - exist at all. imagine the corporate sector was like a single representative firm, selling only one thing and employing people with identical skills and characteristics ( whose wages are therefore all the same as well ). why would it choose to create a new job, with all the associated search costs, when it could simply re - employ someone on furlough? why should unemployment start to fall when there were still around five million people on the cjrs, as was the

has had on our banking system. what has changed, then, since 2012, when spain signed up to the financial assistance programme? naturally, much of the soundness gained by our financial system reflects the general improvement in economic conditions over the past two years, stemming from the stabilisation of international markets, the institutional changes and the monetary policy measures taken at the european level, along with the reforms to our economy ’ s productive sector. at the same time, however, i believe that the reforms in the financial sector have managed to significantly mitigate, if not eliminate, some of our banking system ’ s negative particularities, which made it especially vulnerable to the macroeconomic and financial shocks witnessed since the start of the crisis. in my view there were four such vulnerabilities. 1. firstly, the lack of sufficient capital at that time and, generally, of loss - absorption capacity in a significant part of the banking sector. correcting this shortcoming was, as you will recall, the main objective of the financial assistance programme. the capital shortfalls identified in the 2012 stress tests were corrected by recapitalisation measures that combined capital increases at some banks, burdensharing mechanisms and the contribution of public funds in eight banking groups that were unable to cover their needs by their own means. more recently, an appreciable number of banks have taken advantage of improved market conditions to issue various capital instruments ( for an amount of over €3. 7 billion since the start of the year ). moreover, banks have generally pursued a policy of containing dividend payouts and returns on deposits, following the recommendations made by the banco de espana. 2. the second main flaw in our financial system was a disproportionate exposure to assets with highly pro - cyclical credit quality and, in particular, to the real estate sector. this vulnerability was corrected through two main channels : by increasing the volume of development risk provisioning required in 2012 and, of course, by establishing sareb, the external asset management company to which all the real estate exposure of the most vulnerable institutions was transferred. more recently, the level of coverage of credit portfolio risk was reinforced by the review, by the banco de espana, of the criteria for classifying refinanced and restructured loans by risk and, therefore, of the level of provisioning required. all these steps, on top of the traditionally conservative provisioning policies followed in spain, reduced the latent risk on balance sheets and increased