Mr. Brendan O'Connor:

Stagflation can mean many things to many people but probably in its purest sense refers to a high inflation environment with very low growth. We have revised down our growth forecasts, as is well known, by something like 2.25% but are still posting reasonable figures in the region of 4% for modified domestic demand. Admittedly, some of it is affected by the year-on-year comparison. We are not in that space in a baseline sense.

I refer to what could happen with much higher energy prices. Energy markets are extremely volatile. At one point yesterday, gas prices fell to 11 pence before quickly going back up to 146 pence. I was out watching my daughter play football. It was a warm day but full of wind, so people were not purchasing gas on spot markets. It goes to show that minor changes in the situation in Ukraine and Russia or by policymakers in Europe with regard to sanctions will have large impacts, positive or negative, on energy prices. It is difficult to say but as the prices go up and that affects inflation, obviously there will be a spill-over to growth. We have put that into the stability programme update in our scenario analysis.

On interest rates, I have to be careful what I say because monetary policy is completely independent so I will not give any strong views on that. The expectation is the ECB will move. Markets have priced in something of the order of 0.75% or 75 basis points before the end of the year. In the US, markets expect interest rates to go to something like 2.75% to 3%, while in the UK it is of the order of 2%. According to people who base their careers on this, European interest rates will still be considerably lower by the end of the year.

There is another concept, which I am sure any central bankers present would love to talk about, called the neutral rate of inflation. That is the one that is neither stimulatory nor contractionary. People have to estimate it and some make careers out of it. If the ECB gets to 0.75% by the end of the year, it will be considerably below any estimate I have seen of the neutral rate of inflation, which means the interest rates in Europe will still be expansionary rather than contractionary. They would have to go much higher, up to where the UK is, or even the US. I do not expect interest rates, given what markets are expecting, to have a significant contractionary impact on the economy unless things change hugely.