growth due to the reallocation of resources in the economy remains weak. we can see this in the divergence of rates of returns across firms which remain remarkably and unusually high and the change in capital across sectors which has been particularly low. when the reallocation mechanism is working, the transfer of capital and labour from the less productive to the more productive pulls up the level of productivity in the economy and reduces the divergence between firms. the high degree of divergence between firms at present implies that this reallocation mechanism is working significantly less powerfully now than before the crisis. this can also be seen in the proportion of loss - making firms which stands at around 20 % higher than its long - run average. 2 company liquidations also remain low. so there is still more than a hint of ‘ zombiness ’ in the corporate sector. changes in 2002 to the hmrc ’ s preferred creditor status means that the proportion of loss - making firms might not return to its long - run average. bis central bankers ’ speeches the damage to the banking system has certainly played a large part in this. a wellfunctioning banking system is a key part of the reallocation mechanism. it allocates capital efficiently to its most productive use and matches risk to reward. a badly damaged one, recovering slowly from a period on life support does not play that role well. and the exceptional stance of monetary policy that has been necessary to cushion the fall of the economy and to provide the platform for recovery may also be part of the story here by reducing the pressure on poorly - performing firms. as an aside, i want to make a brief comment in the context of the other part of my job : financial stability. we know that recoveries from financial crises tend to be slow ; it takes on average about eight years to reach the pre - crisis level of real per capita income following financial crises. 3 distorted and damaged financial sectors don ’ t allocate resources effectively. we may not pay the price for a number of years as the boom builds up. but in the end the price we pay is large when a financial system misallocates resources in the boom and in the following bust. real gdp per head – the best measure of our aggregate living standard – remains 1 % below its pre - crisis peak. this high cost to the economy and to society is why we need not only robust regulation of financial institutions but also of the financial system as a whole. financial stability and

16 – 64 are working. there are now over 31 million people in work in the uk. see jones c i ( 2015 ) ‘ the facts of economic growth ’, nber working paper no. 21142. bis central bankers ’ speeches unemployment has fallen at among its fastest rate for 40 years and is now very close to its pre - crisis level – over the past two years over 1 million jobs have been created. the benefits of this are clear. perhaps only a proponent of the ‘ dismal science ’, only an economist would find something here to worry about. but the fact is that we can only go so far down this route. since 2013, the economy ’ s output has grown by some 5 %. but though we have increased by 5 % the amount we have produced, we have increased even more the hours worked to produce it. and as a result the simple arithmetic means our productivity growth has been broadly flat. and the low of productivity that has resulted is one of the main reasons why pay growth has remained so low. we are now getting close to the end of that reservoir of spare labour supply. it is very difficult to say how close ; measuring spare capacity in the economy with great precision – to single decimal points – is not really possible. but for the economy to grow robustly and sustainably over the next few years ’ productivity growth will need to begin to pick up. this does not need to happen overnight. but it does need to happen. the mpc ’ s economic forecast i am pleased to be able to say that this is the central scenario in the mpc ’ s latest forecast. our forecast is for the economy to grow robustly at around 2. 5 % a year over the next three years. that is a bit slower than the average annual growth rate of nearly 3 % in the seven years before the crisis. but it ’ s a great deal better than the roughly 0. 5 % annual average over the seven years that followed. in our forecast, growth continues to be driven by private domestic demand – essentially, household consumption and business investment, both of these have been growing strongly since the middle of 2013. of course, given our history any forecast of sustained robust consumption growth in the uk automatically raises eyebrows ; the suspicion of a debt fuelled spending boom is never far away. but our forecast of strong consumption growth over the next three years does not depend on an increase in household debt. in our forecast, consumption is initially supported by the growth in