The first case<\/strong> sees disinflation from here as a process largely independent of other developments in the economy. Disinflation owes to a self-sustaining virtuous cycle of declining headline inflation, falling inflation expectations, weaker pay growth and easing domestic services price inflation. Just as inflation rose on the back of external shocks, it will revert to target as those shocks recede.<\/p>\n

The second case<\/strong> also foresees continued disinflation. This again owes to the selfsustaining virtuous cycle of declining headline inflation which I already outlined. But what is distinctive here is that this virtuous cycle relies on the maintenance of a restrictive monetary policy stance to bear down on inflationary pressures. Bank Rate will need to fall over time, but at a pace that ensures sufficient restriction is maintained in the transition for UK inflation to reach target in a lasting and sustained manner, not just fleetingly or in passing.<\/p>\n

The third case<\/strong> posits deeper structural changes in the UK economy that threaten to impart a more lasting inflationary dynamic, if not met with an equally lasting monetary policy response necessary to return inflation to target and keep it there.<\/p>\n<\/blockquote>\n

Those three scenarios cover the range of views on the MPC, from the doves who want to cut rates to the hawks who are more worried about inflation.<\/p>\n

Pill says he sees merits in all three options, but that his \u201cmodal outlook\u201d is probably closest to the second case.<\/p>\n