, more than 40 % of the foreign value - added contained in uk exports comes from the rest of the eu. within the single market, the united kingdom has also been a major hub for wholesale banking activities. more specifically, the single passport means that uk - based banks can currently serve the rest of the eu without needing to set up subsidiaries in other member states, and vice versa. that implies sizeable savings in terms of capital and liquidity. if, in the long run, the risk of a less open uk economy in terms of trade, migration and foreign direct investment were to materialise, there would be a negative impact on innovation and competition and, thus, productivity and potential output. such developments would first and foremost weigh on the uk economy. they would to a likely lesser extent also have some limited adverse spillover effects on the euro area. the overall impact would, however, vary across countries depending on their trade links with the united kingdom. so far the euro area has weathered the fallout from the referendum outcome with encouraging resilience, also thanks to the preparations of central banks and supervisors on both sides of the channel. the outcome of the vote led to a pronounced bout of heightened risk aversion, but the market reaction was short - lived and asset prices largely recovered in the weeks thereafter. also, the euro area economic sentiment indicator and the purchasing managers ’ index, which declined in august, recovered in september and october. in the united kingdom, economic activity has also remained fairly resilient on the back of robust consumption growth. at the same time, uncertainty appears to have weighed on investment and the pound sterling. economic activity in the united kingdom is generally expected to slow down. it is difficult to predict the precise economic implications of the united kingdom withdrawing from the eu. they will notably depend on the timing, progress and final outcome of the upcoming negotiations. thus, it is important to have clarity on the negotiation process as soon as possible in order to reduce uncertainty. 2 / 3 bis central bankers'speeches however, let me be clear. while the uk referendum did create uncertainty as far as the country ’ s participation in the single market is concerned, the single market cannot go backwards. it is imperative that its integrity and the homogeneity of rules and their enforcement will be preserved. this also means we cannot take backward steps concerning the regulatory, supervisory and oversight framework for banks and financial market infrastructures, which has been enhanced considerably since 2008. it is, in fact,

this were to turn out to be the case, monetary policy would have the flexibility to respond provided the inflation outlook remained benign. conclusion to summarise, the challenge that we australians face is to make the best of the fundamental changes that are taking place in the global economy. as a country rich in natural resources, bis central bankers ’ speeches we are well placed to benefit from this change. but if we are to take advantage of this opportunity, the structure of the economy must continue to evolve. labour and capital will continue to shift to the resources sector. industries affected by the high exchange rate will need to find ways of moving up the valued - added chain. and parts of the service sector will need to continue their adjustment to the changes in household spending and borrowing. these adjustments are difficult, but if they are not allowed to occur, as a nation we will have given up the potential benefits that the changes in the world economy are making possible. public policy can help in the adjustment process by promoting flexibility in the economy and by reducing some of the costs of change for individuals and communities. it can also help manage some of the new risks arising from these global developments. monetary policy can help the adjustment by keeping inflation under control and maintaining stability in the overall economy. our judgement is that the current setting of monetary policy is consistent with this, with the board keeping the cash rate unchanged at 4. 25 per cent at its meeting yesterday. i would like to thank you very much for your time this morning, and i am happy to answer questions. bis central bankers ’ speeches