, as a result, mortgage defaults were relatively low in the crisis, high mortgage debt did appear to have had an impact more generally. evidence from the crisis supported the view that more debt is associated with deeper downturns. bank research showed that highly indebted households in the uk cut consumption more sharply over 2007 to 2009 ( chart 1 ). 11 and during the global financial crisis, countries with higher aggregate debt levels relative to incomes had deeper falls in aggregate consumption and hence deeper downturns ( chart 2 ). chart 1. change in consumption relative to income by lti between 2007 - 09 ( a ) ( b ) ( c ) chart 2. higher household indebtedness was associated with sharper falls in consumption during the crisis percentage point change in consumption to income ratio adjusted consumption growth 2007 - 12 ( a ), per cent - 5 - 10 - 15 - 20 united kingdom - 25 0 to 1 1 to 2 2 to 3 3 to 4 ≥4 mortgage lti ratio sources : living costs and food ( lcf ) survey, ons and bank calculations. ( a ) change in average non - housing consumption as a share of average posttax income ( net of mortgage interest payments ) among households in each mortgage lti category between 2007 and 2009. ( b ) lcf survey data scaled to match national accounts ( excluding imputed rental income, income received by pension funds on behalf of households and fisim ). lti ratio is calculated using secured debt only as a proportion of gross income. ( c ) repeat cross - section methodology used, with no controls for other factors, or how households may have moved between lti categories between 2007 and 2009. - 2 - 4 - 6 - 8 - 10 household debt to income in 2007, per cent sources : floden, m ( 2014 ) and oecd national accounts. ( a ) change in consumption is adjusted for the pre - crisis change in total debt, the level of total debt and the current account balance. see floden, m ( 2014 ), ‘ did household debt matter in the great recession? ’ available at www. martinfloden. net / files / hhdebt _ supplement _ 2014. pdf. our aim was to guard against an upside risk. in 2014 the bank ’ s monetary policy committee ’ s central forecast was that in the medium term house price inflation would fall back and rise broadly in line with the 2014 stress test was based on a scenario, in

shocks to which others are responding are similar to those with which the mpc must contend. to my mind, there are some important differences in this regard : first, cost pressures are stronger in the us. american unit costs have increased by 3 % in the past year and are growing above historical averages, while unit costs in the uk are currently rising by around half that rate or at a speed notably below that consistent with the inflation target. 4 second, the uk economy is twice as open as the us and is therefore more exposed to global weakness, dragging on exports. 5 third, this also means that pass - through of weak global inflation, compounded by exchange rate appreciation, is likely to exert a greater and more persistent drag on uk inflation. partly as a result, after adjusting for one - off factors, core inflation is firmer in the us than the uk. fourth, the stance of fiscal policy differs markedly. the uk is undergoing the largest fiscal consolidation in the oecd, with the structural deficit projected to decline by around 1 percentage point a year on average over the next four years, having fallen only 1 / 3 percentage point on average over the past three. in contrast, us fiscal policy is expected to loosen notably over next three years. finally, the bank of england ’ s control over macroprudential policy reduces the need to use monetary policy to address financial stability considerations. recall that, despite an expansion that started two years before our own, the fed has only raised rates to our lofty level of ½ %. this last point is not facetious. as my mpc colleague jan vlieghe argued in a speech yesterday, a variety of structural factors have likely depressed the so called equilibrium interest rate, or the rate consistent with the economy operating at full employment and inflation at target. 6 bank staff have estimated many of these drivers. in my long - held view, rate rises, when they come, are likely to proceed at a gradual pace and to a limited degree for some time. most economics is at the margin, and the tightening of monetary policy – once warranted – is likely to be marginal for some time. given all of that, what are the prospects for a rate rise in the uk? last summer i said that the decision as to when to start raising bank rate would likely come into sharper relief around the turn of this year. well the year has turned, and, in my view, the decision proved straightforward : now is not yet the