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Nonetheless, Table 1 suggests that the average cycle has typically been in the range 3 to 5 percentage points – towards the upper end in the period since 1970, towards the lower end in the period since 1994. Fairly sizeable degrees of interest rate headroom have been necessary in the past. An interesting thought-experiment is to assess the likelihood of future interest rates having risen sufficiently to give monetary policy the headroom necessary to cushion a recession. Chart 13 plots a set of cumulative probabilities of official interest rates exceeding a set of interest rate thresholds – 2% (the “John Bull threshold”), 3% (the average loosening cycle since the 1990s) and 5% (the average loosening cycle since the 1970s). 7 With yield curves currently low across the major advanced economies, the probabilities of interest rates exceeding these thresholds are modest. Even at a ten-year horizon, the probability of UK rates exceeding 2% is only around 50%, 3% around 40% and 5% around 20%. If financial markets’ guesses about interest rates are realistic, it is odds-against there being sufficient monetary policy headroom to cushion a typical recession. If we now compare the probabilities of interest rates being at these thresholds with the probabilities of recession, a striking conclusion emerges. Recession probabilities exceed interest rate threshold probabilities by a factor of anywhere between 1.5 and 4 (Chart 13). For example, a conservative estimate of the probability of recession over a ten-year horizon is around 80%.