and business spending may be beginning to abate. corporate liquidations and unemployment : better than feared the prompt and large policy actions are likely to be one reason why corporate failures have, to date, not increased by as much as might have been feared. although output has fallen by more than in either the 1980s or 1990s recessions, liquidations have risen by less than at the same stage of those downturns. companies have benefited from the fall in debt servicing costs associated with the sharp reduction in bank rate and by the government scheme allowing them to defer tax payments. and by supporting corporate credit markets, the bank ’ s asset purchase programme has also helped some firms to bypass banks and access capital markets directly. i fully recognise that the asset purchase programme has not been as of much help to many small and medium - sized enterprises – many of whom are represented here today – who are not able to access capital markets and are largely reliant on bank credit. however, i would contend that even the sme sector has benefited indirectly from the programme of asset purchases, such as from the accompanying fall in libor rates. in a similar vein, although there has been a substantial fall in employment over the past year or so, the extent of the job losses to date has, if anything, been less than we might have feared given the falls in output. this may partly reflect the greater degree of wage flexibility that has been apparent in this recession compared to that in either the 1980s or 1990s. 2 a substantial element of the workforce appears to have been able to protect their jobs by accepting slower wage growth. by comparison with the past, these relatively limited increases in liquidations and unemployment are likely to have been important in mitigating the severity of the downturn. large numbers of corporate failures are very damaging to the economy, with the loss of the skills and experience that firms have built up over the years, as well as of their investment in machinery and equipment, and with the shedding of jobs. indeed, the relatively muted increase in company liquidations in this recession may have helped to limit the falls in employment. moreover, the fact that more of the burden of firms ’ adjustment to the recession has been spread over the workforce as a whole in the form of lower wages, rather than being concentrated on those losing their jobs, is likely to have lessened the fall in consumption. this is both because households may find it easier to borrow to smooth their consumption if they still have a job and because it

is in part because the headwinds facing the economy are likely to take some time to die down. these headwinds include public balance sheet repair, a highly indebted private sector likely to be particularly sensitive to interest rates, as well as the drag from a 12 % appreciation of sterling over the past year and the persistent muted demand from our main export markets. over the medium term, several dynamics are likely to keep rates lower than in the past. uk rates could be restrained by continued imbalances between global saving and investment, together with potentially lower rates of global productivity growth. the mpc can also be expected to accommodate with lower risk - free rates the higher spreads that are likely to result from new regulatory requirements. all of these factors likely mean that, even when spare capacity is used up, bank rate will need to be materially lower than in the past in order to keep the economy operating at its potential and inflation at its target. the bank is well aware that a prolonged period of historically low interest rates could encourage other risks to develop. in the uk, the biggest risks are associated with the housing market, which is why last month the bank ’ s financial policy committee ( fpc ) took graduated and proportionate actions. the bank ’ s role is not to control house prices. nor can the bank do anything to address the severe structural problems across the uk caused by a chronic lack of new housing supply. our job is to mitigate the risks to the broader economy that arise from these underlying challenges. it is the prospects for household indebtedness that concern us. uk households start from a vulnerable position, with debt at 140 % of disposable income and the share of riskier mortgage lending rising markedly over the past year. housing debt can represent a major risk because mortgages are both the largest asset of uk banks and the largest liability of uk households. bis central bankers ’ speeches the fpc does not believe that household indebtedness poses an imminent threat to stability. underwriting standards are more responsible than in the past. but we have seen time and again how quickly responsible can turn to reckless, creating risks that ultimately derail the economy. allow me to explain why this matters to everyone from land ’ s end to john o ’ groats, even those who do not own homes. history shows that the british people do everything they can to pay their mortgages. that means cutting back deeply on expenditures when the unexpected happens. if a lot of