11  13  All speeches are available online at www.bankofengland.co.uk/news/speeches  13  Global developments, Brexit and UK monetary policy Now consider the implications of global developments for the outlook for UK inflation and growth Unlike many other jurisdictions, inflation in the UK is currently at the MPC’s 2% target, the labour market remains tight with wages and unit labour costs growing at target-consistent rates, and inflation expectations of UK households and businesses remain well-anchored. The UK outlook also continues to be shaped by Brexit. Until the turn of the year, the UK economy had been growing around its trend rate. As the MPC had anticipated, this year increased Brexit uncertainty is causing volatility in the UK data. Output increased by 0.5% in the first quarter of this year, boosted by an important contribution from companies bringing forward production to build stocks ahead of the potential 29th March cliff edge. Growth in the second quarter will be considerably weaker, in part due to the absence of that stock building effect and Brexit-related, temporary shutdowns by several major car manufacturers. 12 Recent data also raise the possibility that the negative spillovers to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying. The latest surveys point to no growth in UK output. Looking across the first half of the year, in my view, underlying growth in the UK is currently running below its potential, and is heavily reliant on the resilience of household spending.

It has therefore, not only allowed for the further diversification of risks, but, the resulting higher level of foreign participation and the increased cross border flows has not only strengthened international financial inter linkages between nations but also contributed to the more efficient international allocation of resources across borders. Intrinsic strength of Islamic finance Islamic finance has, thus far, remained positive, despite the current challenging global financial environment. The strengths in Islamic finance are derived from the Shariah principles, the key pillar of Islamic finance that has contributed towards its overall stability and resilience. The Shariah injunctions require that the financial transactions be accompanied by an underlying productive activity thus giving rise to a close link between financial and productive flows. In addition, under the risk sharing arrangement, the Islamic financial institution will share the profit or loss incurred by the entrepreneur. Under this arrangement, there is an explicit risk sharing by the financier and the customer and the real activity is expected to generate sufficient wealth to compensate for the risks. This arrangement, thus, entails the appropriate due diligence and the integration of the risks associated with the real investment activity into the financial transactions. In addition, the Shariah principles also prohibit excessive leverage and speculative financial activities thus insulating the parties involved from excessive risks exposures. The intrinsic principle of profit and risk sharing thus provides an in-built check and balance to the Islamic financial transactions. Explicit in this arrangement is the element of risk management and governance practices.