In particular, the annual growth rate of compensation per employee fell to 1.9% in 2009Q1, down from 2.8% in the fourth quarter. 12 Similarly, the rally in commodity prices will help to offset downward pressures on consumer prices. For instance, since the beginning of 2009 oil prices have more than doubled even when measured in euro. 3. Monetary indicators  While economic analyses already provide a clear indication of the short to medium-term risks of a deflationary scenario, it might be helpful to compare them with the signals emanating from the monetary analysis. This notion is explicitly recognised in the ECB’s monetary policy strategy, where monetary trends provide information on price developments over the medium to longer term and serve as a means of cross-checking the short to medium-term indications for risks to price stability coming from economic analyses. The positive and often almost one-to-one relationship between inflation and monetary growth over longer horizons is perhaps one of the best documented results in economics and has been confirmed in a variety of empirical studies, both across time and across countries. 13 However, a critical test for any kind of analysis is whether an assessment of the data against the principles of the strategy can be translated into practical and relevant policy advice. As regards monetary analysis, this boils down to whether it is possible to separate in real time the important signal for future inflation embedded in the trends of monetary developments from the inevitable noise in the actual monetary data.

Implementation is now being regularly assessed and transparently reported by the FSB and the IMF. This second pillar is deep supervisory cooperation. To manage cross-border challenges to financial stability, international authorities must share relevant information and work together. As the home to four, and host to the other 26, globally systemically important banks, the Bank of England participates actively in all major supervisory colleges, sharing information and expertise gained from overseeing the multitude of complex risks unique to London. We expect the same from those whose firms operate and take on large risks here. The PRA’s open, cooperative approach to supervision means wholesale activity in London can remain globally-integrated and highly efficient, without compromising resilience. 12  The third pillar of responsible openness is ending ”too big to fail”. With enhanced resolution powers and planning, the Bank of England now has the ability to resolve failing banks. The UK’s major banks are on track to complete this year the ring-fencing of their critical domestic high-street businesses from their riskier wholesale activities. And they already hold loss absorbing resources of 25% of their risk-weighted assets against a 2022 requirement of 29%. As a consequence of this progress, market discipline is returning, with the public subsidy enjoyed by the largest banks having fallen by 90%. Now is the time to reap the benefits of these enormous efforts. Platforms are being created for deference to each other’s approaches when they achieve similar outcomes. With the three pillars in place, an open, resilient global financial system is possible.