could do to influence the international environment. the problems originated abroad and we could not avoid their effects. what we could do - and what we have tried to do - was to seek to offset those effects, and compensate for the external weakness, by stimulating domestic demand here in the uk. given weak business confidence, that meant essentially, in the case of monetary policy, encouraging the growth of consumer demand - by cutting interest rates to their lowest level in 40 years. in the event we managed - just about - to avoid recession over the winter of 2001 / 2002 but we did so but at the cost of growing imbalances within the economy between domestic and external demand on the one hand and, domestically, between consumption and investment on the other. essentially we took the view that unbalanced growth was better than no growth at all - which was the only other option we had. this " two speed " economy has, i know, been reflected in the pattern of your own activity as fla members, with consumer finance volumes growing strongly in recent years where business volumes have been relatively flat. in the past year alone new business written to consumers was nearly three times that written to business customers. now clearly the imbalances can't go on increasingly indefinitely. the build - up of household debt and the related strong rise in house prices we saw last year in particular must begin to moderate at some point. so much of the recent debate has been about whether the eventual adjustment will occur gradually, within the context of continuing overall expansion, or more abruptly in which case the overall expansion could prove more difficult to sustain. on the macro - economic data it seems clear that the global economy in fact bottomed out around a year or so ago, and that we have since seen the beginnings of a recovery, notably in the us, on which so much of the rest of the world currently depends. and it is also clear that monetary policy generally and in some countries also fiscal policy - remains supportive. on that view, and given the recent moderate decline in sterling's effective exchange rate, it is reasonable to look forward to a gradual improvement - and i emphasise gradual improvement - in the external environment which would clearly be very helpful from a uk perspective. i don't deny that there are downside risks to this scenario. the eurozone has for example recently put back its projected expansion until later this year. and financial markets, and both business and consumer sentiment, have recently been severely affected by uncertainty over iraq -

of the adjustment in external imbalances since the crisis has been cyclical, not structural according to the imf, the us current account deficit is projected to reach about 3 % of gdp in 2011, against surpluses of roughly 5 % and 9 % of gdp for china and oil exporters respectively. they are a source of tensions that could ultimately lead to protectionist pressures. however, the euro area as a whole has a balanced current account position. global fiscal imbalances remain significant, with a marked degree of heterogeneity between advanced and emerging economies. consolidation efforts required to bring public finances to a sustainable path are a key priority for advanced countries. efforts made to adjust these imbalances remain clearly insufficient. this raises the risk, which i referred to earlier, of a disorderly unwinding down the line, with significant potential fallouts for global financial markets and the global economy. at their cannes summit on 3 – 4 november 2011, g20 leaders agreed on an action plan to lay the foundations for strong, sustainable and balanced global growth in the medium - term. this is welcomed. all g20 members made commitments, but they are sometimes imprecise. it is often unclear as to how these commitments can genuinely contribute to a rebalancing of global demand patterns. for instance, only a few of the g20 members explicitly reaffirmed their support to the solemn pledge by their leaders in toronto last year to halve fiscal deficits by 2013 and stabilise public debt ratios by 2016. large emerging markets have announced that they would enhance the flexibility of their exchange rate regime, but without indicating a specific time - frame when this would occur. europe is doing its share in committing to accelerate and further deepen the single market. more decisive policy measures to rebalance global demand patterns are still required, in particular to raise savings in deficit economies and increase domestic demand in surplus economies. all systemic economies could benefit from effective multilateral surveillance along with their international responsibilities. now is not the time to lose sight of the need to correct imbalances globally although our attention is – for good reasons – more focused on immediate challenges! * the second and related key global policy challenge relates to how best to address global liquidity conditions and volatile capital flow constellations. ample global liquidity conditions bis central bankers ’ speeches have the potential to push volatile capital flows into emerging economies. if they respond by accumulating reserves to cap exchange rate appreciation, this widens global imbalance