price, which both help to dampen the inflation outlook. for 2013, we still anticipate inflation of – 0. 2 %. for 2014 and 2015, the inflation forecast is down in each case by 0. 1 percentage points and is now at 0. 2 % and 0. 6 % respectively. consequently, no inflation risks can be identified for switzerland in the foreseeable future. global economic outlook the snb ’ s inflation forecast is embedded in a global economic scenario. i would therefore like to begin with our assessment of the global economy. global economic recovery continued as expected in recent months, with the main drivers being the us, the uk and china. in the euro area, by contrast, growth lacked momentum and inflation slowed considerably more than expected. in many emerging economies, too, economic activity was rather sluggish. the outlook for the global economy has not changed significantly since the september monetary policy assessment. our forecasts suggest that growth will pick up gradually in the bis central bankers ’ speeches coming quarters. further recovery is likely to be underpinned by a number of factors, including stable international financial markets, a less restrictive fiscal policy and a very expansionary monetary policy in the major advanced economies. europe, however, will continue to experience below - average growth, with banks ’ restrained lending policies and ongoing uncertainty hampering investment activity. in addition, the high level of unemployment in this region will also hold back private consumption. uncertainty about the continued recovery of the global economy remains high overall. in many advanced economies, room for manoeuvre in economic policy is being constrained by the fact that interest rates are already very low and government indebtedness is high, making the global economy especially prone to shocks. we expect that the euro area will overcome the crisis in the medium term. however, the forthcoming assessment of banks ’ balance sheets could cause some ripples. furthermore, exiting from unconventional monetary policy measures is as yet uncharted territory. spikes on international financial markets therefore cannot be ruled out during the process of normalising monetary policy in the major currency areas. swiss economic outlook i will now look at economic developments in switzerland. the economy continued to develop favourably in the third quarter. annualised real gdp was up by slightly more than 2 %. unlike the previous quarter, goods exports grew substantially. domestic demand, however, lost some momentum. on the output side, manufacturing in particular recorded positive growth, having previously fallen for three successive quarters. construction continues to be

mervyn king : monetary policy developments extract from a speech by mr mervyn king, governor of the bank of england, to the bank of israel, jerusalem, 31 march 2008. * * * central banks, along with the rest of the financial world, have changed markedly over the past 20 years. more open and competitive financial systems have developed hand in hand with a recognition that the prime responsibility of central banks is to maintain price stability. to help them achieve that, more and more central banks around the world have been made independent of government. the nature and extent of that independence varies from country to country, but in essence it is the freedom of either an individual governor or a monetary policy committee within the central bank to set interest rates free from political interference. that policy independence needs to be backed by organisational and financial independence which, in the case of the bank of england, is entrusted to a court of directors of the bank which decides on the budget and other relevant financial matters. for those central banks with a long tradition of independence, their pre - existing frameworks of monetary policy have proved sufficient to enable them to bring inflation down and contribute to what has become known as the great stability. but in most of the countries whose central banks have been made independent more recently, policy has been based on an explicit inflation target. inflation targeting has been the framework of choice for the past 20 years. it most clearly represents an explicit commitment by the central bank to the objective of price stability. in the united kingdom, that commitment is in the form of a target for inflation that is defined as 2 % a year, as measured by the consumer price index. in the medium term, a central bank can affect only monetary values – the price level. it cannot change the amount of goods and services an economy is able to produce. over time, there is no trade off between inflation and output, as recent uk history illustrates. between 1950 and 1997, uk inflation averaged nearly 6 %. in contrast, since 1997, inflation has been close to target and much more stable, but annual output growth has averaged a little above its post - world war ii average of 2. 5 %. in the medium term, low and stable inflation does not imply lower output. moreover, even in the short term, meeting an inflation target is in many cases fully consistent with maintaining steady growth of activity. if demand falls below the supply capacity of the economy, inflation will tend to fall. if demand rises too quickly, putting pressure on capacity