Meanwhile, on the other side of the ledger, many essentially backward-looking indicators of UK real demand and activity have held up reasonably well. But we should not yet place great weight on that. It can sometimes take time for disturbances to affect real economic activity. In the United States, arguably there was quite a lag between the onset of problems in housing finance and the pass through to spending. The UK looks to be quite a lot better than the US. The latest data for Q4 last year did, however, suggest that household spending on durables slowed quite significantly. And we are seeing softening in consumer confidence and property market conditions. So the picture on the real economy is mixed. What is clear is that credit conditions are unambiguously tighter than two months ago, underlining that source of downside risk to the outlook for demand and inflation. In retail lending markets, banks have raised the interest rates charged (relative to Bank Rate) on new lending, but they have all been doing much the same and many borrowers seem to have been willing to pay the extra. In consequence, banks generally may not have achieved their desired conservation of balance sheet capacity, and we are now seeing the withdrawal of some lending products. And in wholesale markets, the spread between the price that the banks themselves pay for funds, roughly LIBOR, and the expected central bank policy rate has, again, widened significantly over the past couple of months across the major international markets.

Zeti Akhtar Aziz: Building a robust Islamic financial system Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2nd International Conference on Islamic Banking, Kuala Lumpur, 7 February 2006. *  *  *  Let me first of all extend a warm welcome to the participants of this Second International Conference on Islamic Banking: Risk Management, Regulation and Supervision, jointly organized by the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank and the Islamic Financial Services Board (IFSB). This forum has an important role of not only fostering the dissemination of knowledge and exchange of experiences on the subject of risk management, regulation and supervision, in facilitating a better understanding on the issues confronting us, and thus contribute towards advancing forward the development of the industry. Effective risk management capabilities is particularly important in this more challenging global financial environment of heightened uncertainties and increased potential for financial vulnerabilities. And an effective regulation and supervision will ensure the soundness and stability of the system. In the recent decade, the Islamic financial system has experienced remarkable growth and transformation, demonstrating its potential as a competitive form of financial intermediation. Today, Islamic finance represents a multi-billion dollar industry with a comprehensive range of products and services, serving a broad spectrum of consumers and businesses that extends beyond the Muslim world. In developing the Islamic financial system, it is important to focus on the appropriate pre-requisites that will facilitate its efficient evolution.