of inflation in the medium - term remains low, stable and anchored at the target. and that has helped to contribute not only to the stability of inflation, but output as well. reforms to both the labour market and monetary policy have undoubtedly played an important role in the reduction in output volatility and emergence of a stable, low inflation environment. but there was a third factor at play that was probably also quite fundamental. over the first decade of the mpc the economic cycles in the rest of the world were generally moderate, although not without excitement. and there is good evidence to suggest that the integration of emerging economies, such as china, into the global economy was beneficial to countries like the uk. the share of chinese goods in total uk goods imports has almost tripled in money terms over the past fifteen years to around 8 per cent, and it ’ s likely that much of the content of imports from elsewhere originated in china. this rising share of chinese imports has reduced manufactured imported goods prices relative to other prices and wages. consumer goods price inflation hovered around zero for most of the last ten years, until the recent rise in oil prices. as a result, the purchasing power of uk consumers has risen with higher real wages achieved without any cost to employers. in other words, for a period the beneficial tailwind allowed the economy to run at a higher level of activity than would otherwise have been the case, without generating additional inflationary pressures. but the economic environment overseas has taken a turn for the worse. in many ways it is a tale of two cycles. the financial cycle the first cycle has been in the financial sector in the west. a banking cycle is not a new phenomenon but the scale of the expansion of cheap credit for some years and speed of the downswing in the last year has been exceptional. it started in the us with a real downturn in the housing market and rising default rates on sub - prime mortgages in particular. that led to a freeze in the structured credit markets built on those loans as investors lost confidence in the credit ratings they depend on. in finance at least, it is still true that when america sneezes the rest of the world catches a cold and the sub - prime crisis swiftly spread to financial institutions across the world. they became uncertain about the value of the financial positions they held, let alone what their counterparties held. this led to a wider loss of confidence in banks, the hoarding of cash and illiquidity in many financial markets which

portfolios in most of our severe recessions and the post crisis recession was no exception. on the face of it the uk cre market is simmering. transactions reached a record high of £81 billion in the 12 months to june this year. prices have risen by 10 % over the same period. as prices rise, average yields are deteriorating and are now around 2005 levels. the credit element of the story, however, which is most relevant from a macroprudential perspective, has been much less pronounced than in past episodes, cre activity has been financed more with equity than debt ; the share of equity financing of cre investment increased from about a third pre crisis to three quarters in the years following the crisis. and particularly in london, much has been financed by foreign flows which reached £40 billion last year. but leverage has started to creep back up in the past year or so as we have seen the return of more leveraged investors. that is not to say that there is no macroprudential interest in the uk cre market at the moment. a rapid fall in cre values could affect the uk economy through other channels. about 60 % of lending to smes and smaller corporates is secured on property collateral so a fall in values could well constrain investment. and there are important initiatives in train to develop a database of cre debt and to explore the use of “ through the cycle ” valuations1. in my view, the overall picture of the credit cycle in the uk suggests that it is entering into a more normal phase. credit terms remain easy for both households and corporates and credit is readily available. at an aggregate level, credit in the economy is growing below pre - crisis levels though to me that might well be a misleading metric. aggregate indebtedness is considerably below pre - crisis levels though it remains high. at a more granular level, credit is see brazier, a ( 2015 ) “ nurturing resilience to the financial cycle ”. bis central bankers ’ speeches growing fastest in the areas of unsecured lending to consumers and lending to buy to let housing investors. the stock of credit in each of these areas is reasonably material at around 10 % of gdp. but it is a relatively small component of the overall stock of credit. while we are seeing competition between lenders pushing down on rates, particularly in the mortgage market, we have not yet seen evidence of a general deterioration in underwriting standards. countercy