that we observed in the past will persist or reverse. over the past year or so, a degree of uncertainty has entered the economic landscape on both the supply and demand side. so what is causing this uncertainty? on the supply side, inflows of migrant workers from the new member countries of the eu remain high. that may or may not continue, and we cannot be sure that migrants would stay in the uk if the labour market were to turn down. and it is also unclear whether businesses will be able to recruit staff as easily as in the past when, as the prices of imported goods and services fell, the real value of take - home pay rose without higher wage settlements. last year, non - oil import prices rose, depressing the growth of real take - home pay. and oil prices increased further. on the demand side, our central view remains a relatively benign one. the economy slowed in the first half of last year, led by consumer spending. but growth has begun to pick up. averaging the growth rate of consumer spending over the final quarter of last year and the first quarter of this, shows that consumption growth has returned to not far off its long - run average. export growth and business investment both seem to be recovering. so in its may inflation report, the monetary policy committee had, as its central outlook, a return to steady growth with inflation close to the 2 % target. but there are many risks and those have been bought into sharp focus by the recent financial market turbulence. and, just as for england in the world cup, the threats come mainly from the rest of the world. the recent volatility in financial markets is reflecting the real risks which face us as, after a period of robust world economic growth, we approach a somewhat bumpier stretch of the road. a rebalancing of global demand is desirable, but the way ahead may not be smooth. one risk is that during the fastest three - year period of world economic growth for a generation, monetary policy around the world may simply have been too accommodative. in the main industrialised regions – the us, euro area and japan – official interest rates were very low for a long period. the liquidity created by low official interest rates around the world has helped to push down long - term real interest rates and compress credit spreads to unusually low levels. that monetary stimulus is now being withdrawn. since january, long - term interest rates have moved up, and now other asset

prices are responding. so far we have seen little more than a modest correction to the prices of a wide range of assets that had risen sharply over the previous two years. the realisation that such levels of asset prices were unlikely to be sustainable, coupled with a tightening of monetary policy in many countries, has injected uncertainty into financial markets. and it is hardly surprising that, as investors searching for yield realised that they might have underestimated the uncertainties, the price of risk moved up. even though the monetary stimulus around the world is now being withdrawn, its effects are still being felt. there are some signs of inflationary pressures in the main industrial countries. even in china, with its growing manufacturing base and large pool of labour, some indicators are showing upward pressures on export prices. and in turn that is raising our import prices, over and above the increases resulting from higher energy costs. at home, we can take some comfort from the fact that, despite sharp increases in energy prices, both consumer price inflation and inflation expectations have remained close to the target. pay pressures in the labour market are muted, reflecting in part the need of employers to adopt a tough stance in wage bargaining when faced by such large increases in other input costs. companies facing higher costs for energy, raw materials and other inputs, have been willing to offer only moderate wage increases in order to minimise the squeeze on their profit margins. the rapid rise in input prices and the muted degree of pay pressures are not independent of each other. inflation expectations – whether measured by household surveys or implicit in government bond yields – have moved up during the course of this year. although not of serious concern as yet, the mpc will monitor inflation expectations carefully. inflation itself remains volatile as increases in oil and natural gas prices pass through to household bills. those increases will dampen the growth of real household disposable incomes and moderate consumer spending. so the economic outlook is far from certain. in these circumstances the monetary policy committee must examine carefully all information, learn and, if necessary, revise its judgements, and question all received wisdom. in other words, it must be enlightened. the scottish enlightenment, it is generally agreed, began and ended in the 18th century. our present framework for monetary policy is of more recent vintage. but just as the scottish enlightenment still influences our thinking today, so the twin features of that framework – namely inflation targeting and independence of the bank of england – will be crucial to successful monetary policy in