See the report written by the Productivity Leadership Group, chaired by Sir Charlie Mayfield, (2016), ‘How good is your business really? Raising our ambitions for business performance’, available at: https://howgoodisyourbusinessreally.co.uk/. 20 See ‘The world trade slowdown redux’, Bank Underground blogpost, available at https://bankunderground.co.uk/2016/12/12/theworld-trade-slowdown-redux/ and Frenkel, J. and Rose, A. (2000) ‘Estimating the Effect of Currency Unions on Trade and Output’, NBER working paper No. 7857. 21 As noted in ‘The Spectre of Monetarism’, speech given by Mark Carney, Roscoe Lecture, Liverpool John Moores University, 5 December 2016, available at http://www.bankofengland.co.uk/publications/Pages/speeches/2016/946.aspx. 19  8  All speeches are available online at www.bankofengland.co.uk/speeches  8  In this context, Brexit in general and financial services in particular will be key tests of the world’s capacity to build a path to stronger, more sustainable growth. IV. Levelling Down or Up: Managed Trade or Free Trade in Services? One cause of global imbalances is the uneven playing field between trade in goods and services, with barriers to services trade currently up to three times higher. 22  Most of the world’s major surplus countries, like Germany and China, are net exporters of goods and benefit from this asymmetry. Conversely countries with a comparative advantage in services, like the US and UK, are more likely to run current account deficits (Charts 5 and 6). Chart 5: Correlation between current account balances and comparative advantage in services  Sources: Barattieri, A. (2014), ‘Comparative advantage, service trade, and global imbalances’, Journal of International Economics, Vol. 92, Issue 1, UNCTAD and WEO April 2017.

Whatever happens, monetary policy will be set to return inflation sustainably to target while supporting as best it can the necessary adjustments in the economy. ------------------------------------I would like to spend the rest of my time on another balance, or rather other imbalances, whose resolution will be an important determinant of our future prosperity. II. The Challenge of Global Imbalances With many concerned that global trade is taking local jobs, protectionist sentiments are once again rising across the advanced world. Excessive trade and current account imbalances are now politically as well as economically unsustainable. Perhaps because imbalances ultimately reflect savings and investment choices within a country, they are often described as morality tales with the virtues of Swabian housewives contrasted with the vices of the Anglo Saxon rakes. In fact, trade imbalances are natural features of an open system and can be warranted by differences in demographics, levels of development and expected paths for income. 3  3  Savings and investment imbalances will shift with changes in relative prices, including changes in prices of final goods and services, changes in nominal exchange rates, changes in relative production costs (including unit labour costs), and changes in the costs of trade. Lags and frictions will mean that different components will shift at varying speeds. This, in turn, can result in large adjustment costs not present in economic models, which can make a laissez faire approach risky.