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mpc: 8 forecast period on account of the recent stronger-than-expected outturns. The balance of risks was on the downside, mainly reflecting risks to the world economic outlook. 30 The Committee's best collective judgment of the prospects for inflation was for RPIX to remain below the 2½% target for nearly all of the forecast period, dropping just below 2% for a while, before increasing quite sharply to end up at around the target at the two-year horizon, when it was still rising. This acceleration in prices reflected the accumulating pressures on supply capacity from the period of above-trend demand growth and the unwinding of the various temporary downward influences on the price level and so on measured inflation. The trough was lower than in August. The projection at the end of the forecast period was almost the same as in August, but with a higher sterling exchange rate and with the official interest rate at 5.5% rather than 5.0%. For the same reasons as for the output projection, the balance of risks to inflation was on the downside. 31 As already described, there was considerable uncertainty in the Committee about the inflation outlook, and also a range of preferred assumptions for the path of the nominal exchange rate, earnings growth, and price-cost margins; these were presented in Table 6.B on page 58 of the Inflation Report published on 10 November. Different members preferred different combinations of these assumptions, either raising or lowering the inflation projection at the two-year horizon by ¼ to ½ percentage points, so that there was a range of approaching one percentage point between the lowest and highest preferred central projections of individual Committee members.

Tactical considerations

32 The Committee discussed three other issues potentially relevant to its policy decision: the significance of the steepening in the sterling yield curve; the relevance of ECB and FOMC policy decisions; and the implications of the shape of the inflation projection. 33 On one view, the rise over recent months in short and medium-maturity market interest rates, as evidenced by for example short sterling futures contracts and the gilt yield curve, meant that monetary conditions were materially tighter than reflected in the fan chart projections. In consequence, the market was doing some of the Committee's work for it, so that other things being equal the Committee could operate with a lower official repo rate than would otherwise be the case. Against this, it was argued that the Committee would take material risks with its credibility if it failed to tighten in line with market expectations, where it regarded those expectations as well based. If demand were