confidence by removing some of the worst downside risks associated with a potential slide into deflation. as i noted a moment ago, we aim to source the gilts from institutions other than banks. because the banks end up with more customer deposits and more liquid assets, they may be encouraged to extend more bank credit. in this way, qe could boost the supply of credit through the banking system, as well as through the capital markets. but in the circumstances prevailing after the financial crisis, with the banks engaged in repairing their balance sheets, this particular channel was expected to be weak. what is probably more relevant to the supply of credit at the current juncture is the amount of bank capital and the cost and availability of bank funding. qe may then boost credit supply indirectly if it leads investors to increase their demand for bank debt and equity. as you will be aware, the monetary policy committee has so far purchased £325 billion of gilts, £200 billion in a first phase during the worst of the recession in 2009 ( qe1 ) and £125 billion in a second phase as the economy slowed at the end of last year and which was cash can be thought of a zero - interest perpetuity issued by the state. but it has value because it can be used in transactions. the mpc ’ s asset purchases are actually financed by issuing bank reserves which pay bank rate rather than nothing and which can be easily converted into cash. bis central bankers ’ speeches completed shortly before our latest policy meeting ( qe2 ). to give some context, that represents around a quarter of the total stock of uk government debt in issue. it is, though, important to remember that throughout this time the debt management office has been issuing substantial net quantities of new gilts in order to fund the government ’ s budget deficit. so, despite the scale of our purchases, the stock of conventional gilts held by the private sector is actually higher now than when we started our purchases ( see chart 1 ). what impact have our purchases had on asset prices? chart 2 shows the evolution of a representative gilt yield and an equity price index from the beginning of 2007, just before the start of the financial crisis. i have also marked on the periods when the mpc was buying gilts in grey. when there is bad news about the economic outlook, one would expect to see gilt yields and equity prices both falling. that is indeed what one observes during late 2008 / early 2009 at the worst

the point that comes across, for me, is that inflation would be lower had effective expectations of the implications of brexit, across different parts of the economy, been more uniform. let me be clear. i ’ m not saying one side or the other – households and financial markets – is “ wrong ” or “ right ”. we don ’ t yet know. my points are rather ( i ) that for as long as we don ’ t know the ultimate brexit outcome, it ’ s understandable that expectations should differ and ( ii ) that the particular difference we ’ ve seen since the referendum, with the foreign exchange market more pessimistic than the real economy, has been inflationary, and the gap in expectations has therefore been an important contributor to the recent rise in inflation and therefore interest rates. a corollary is that at least until brexit actually happens, its significance for inflation and interest rates derives not so much from the process itself but from whether those expectations move closer together or further apart. however it occurs, whether via a stronger exchange rate or weaker consumption, a degree of reconciliation would tend to lower inflationary pressure. further divergence would do the opposite. i think it ’ s hard to predict which of these is more likely. some remarks about wage growth and unemployment : don ’ t forget productivity one consequence of being uncertain about supply growth, for a monetary policy maker, is that you begin to rely somewhat less on indicators of economic growth – it ’ s no longer so clear what constitutes a “ strong ” or a “ weak ” gdp print, relative to underlying productivity – and instead put more weight on direct measures of spare capacity, such as unemployment. however, that ’ s advisable only to the extent you trust the link between unemployment and wage growth. in recent years, many seem to have lost that trust. according to the “ phillips curve ”, low unemployment is meant to push up wage growth. yet here we are with unemployment at a four - decade low and wages still growing at a rate well below the historical average. as a result, several commentators have questioned the mpc ’ s central prediction that wage growth will rise next year. some have gone further and pronounced the death of the phillips curve. all speeches are available online at www. bankofengland. co. uk / speeches there are always risks to any forecast. but the latter claim, at least, is premature. using annual data, chart 10 plots uk wage growth