asking you about your growth
forecast, there's been a significant upgrade to your
growth outlook. You also have upgraded your inflation
forecasts. And you still cite upside risks to your inflation
forecasts in the future as well. It sounds to me like there is
still more work to be done on the right side. Can you
elaborate? Well, let me start with the right side of that and
come back to the components of it. As you say, we've been very
clear in the message today on rates that we're not giving a
steer on future rates. And we didn't do that last time,
either. So we'll we will be we will instance be shaped and
driven by the evidence as it emerges. And I would just want
to be very clear on that we're not giving a steer one way or
the other today.
Oh, growth? Yes, we have upgraded our growth forecast. I
mean, I would draw a distinction between changing levels here. I
mean, change? Yes. It's it's, it's it's one, I think it's
maybe the biggest upgrade we've ever done. The level is still
quite low. I mean, let's be honest, the reasons for the
upgrade, lower energy prices feeding through. That's that's
very helpful. Fiscal policy we've got we obviously
incorporated the budget, since we last did a forecast, and that
is providing more support. And the global economy is providing
more support. I think, China, for instance, I would be a point
to there that the end of the zero Covid policy was less, I
think, disruptive than many of us feared it might be. And I
think Fourth and finally, I would say the UK economy is more
resilient. Employment has been more resilient than we fed and
thought it would be. So that's good. How much confidence should
we actually have in these forecasts? Because it was not so
long ago that the Bank of England's were telling us that
we're gonna see four negative consecutive quarters of growth
and a very long recession. None of that has panned out. Can I
start by making a
an important quite fundamental point about forecasts, and
certainly our forecast, they are conditional forecasts, they're
not unconditional or conditional. By that I mean,
they are conditional on financial market prices. They're
conditional on commodity prices that can move Krishna along
government policies.
So as those conditions change, we change our forecasts. So
there has been a very big change in energy prices, for instance,
you know, since our last two forecasts, and that feeds
through into the forecast. So the forecast does change in that
sense, and it's appropriate that it changes. But I just want to
emphasize that that conditional points. The second thing is that
we're living in a world of very big shocks. Yet those shocks
were very hard to predict at the time and obviously impossible to
pay. So I'm, sadly I'm afraid the war in Ukraine is a terrible
thing. And it was not possible to predict them a fate that
would happen in advance, we have to deal with the consequences of
it. And understanding the consequences of it is hard to
hard to forecast. So we have to deal with all these things,
which is why our forecasts do change and do evolve.
Well, you've kept the line about there still being upside risks
to the inflation forecast, what would you need to see to be
confident that inflation actually is beginning to move in
the right direction? Well, I think there's two parts to that.
I mean, the sort of first half of the forecast and the second
half of the forecast. So let me start with the first half, I
think we do, we do expect quite a rapid now fall and inflation
during the rest of this year, going into next year. And
obviously, we want to see that happen. That's not so much what
I would call a behavioral thing. Some elements of it are, it's
more are we going to see these things that we're told are going
to happen, some of which are mathematical, so they will
happen, actually, the base effects, the annual effects, but
we just need to see this actually happen now. Then you go
into the second half, which is much more judgmental, and
incidence behavioral in terms of particularly the question of
persistence.
And what's going to happen? Are we going to see any output gap
open up with that? We think we will. But it's going to happen
later than we thought and probably less than we thought.
So how are those things going through? And those are always
judgmental elements. I'm just one of
one of the things that we've spent most time on this in this
forecast is the whole question of what we tend to call
asymmetry. So inflation went up very rapidly. I mean, we know
why, in a sense, we can identify all the causes of it. If you let
a model go to work, it tends to be quite symmetrical. They just
it just it comes down, though rapidly. And we
know sorry, hang on. This is where judgment comes in, and
where other approaches, other sorts of economics, economic
approaches come in. And we do think there are risks it will be
more asymmetric. It'll come down but it will take longer to come.
Yeah. Well, that comes back to persistence, inflationary
pressures, and I want to bring up the comments from the UK
economist. If UK economists Yuko said that people need to accept
that they're poor. Obviously, it's sloppy wording. We covered
that in the press conference, but is the sentiment not correct
and that it would make your job easier if people just stopped
asking for pay rises?
Let me just re emphasize and if you would agree
You know, I've talked about this a lot. It's not the it's not the
right choice of words. But there is an important point, of course
in, which is that there has been a very big shot to national
income, national real income has gone down because of the very
big term, what he called terms of trade shocks, import prices
have
risen much faster than domestic prices. And that has reduced our
national income as a whole. Now,
the concern for us, we can't, we can't, I wish we could make that
go away. But we can't.
What we have to watch, of course, is what we call the
second round effects, the domestic inflationary pressures
coming through. That's why we raise interest rates. And it's
looking at how those those effects take place. How people
form their expectations about future inflation that is so
important for us. And that's the point. So the wording is
critically important, because I want to emphasize, we are very
sensitive to the impact that has this house on people in this
country, very sensitive. I want to ask you one question about
the banking crisis. It feels like it's it's moved to the
background of people's minds. But there's still regional banks
in the US issues are flaring up. Even today, we're seeing some of
the bank there come under selling pressure. How do you
think about it in the context of potential financial contagion to
the UK banking system? Well, we watch it very carefully. And I'd
be clear, I mean, as you said, it's, you know, it's had a bit
of a bit of an up and up and ups and downs to it in terms of the
news, but we watch it very carefully. We're watching very
carefully if we have a contagion effects, we're obviously heavily
involved in the global discussions and processes. What
I would say and I'll maintain something upset a number of
times in recent weeks is that the UK banking system I think,
is in is in good shape. Its its robust, its capital, and
liquidity positions are robust. And it's an it's in a position
to support credit supply to the economy, and that's very, very
important. Thank you. You're welcome.