from the worst downturn since the great depression. during previous periods of accelerating growth and firming business confidence, the mpc had always tightened policy significantly ( as evidenced in the correlation between survey indicators and mpc votes seen in chart 1 ). on the basis of this past behaviour, the mpc would have raised interest rates by 2 to 3 percentage points between august 2013 and the end of 2014. for anyone who might suggest the mpc should have followed that reaction function, note that, even on unchanged policy, cpi inflation in the summer of 2016 was running at only about ½ % and core cpi inflation around 1¼ %. in other words, the amount of volatility in interest rates should match the amount of uncertainty surrounding the economy. there should ideally be no additional volatility, or risk premium, due to uncertainty about how policy would respond. all speeches are available online at www. bankofengland. co. uk / speeches chart 1 : close correlation pre - crisis between output growth and policy 3 month moving average, bps combined cips output survey ( lhs ) - 25 - 50 - 75 3 month moving average, balance average mpc vote, including qe ( rhs ) - 100 - 125 sources : ihs markit, ons and bank calculations. notes : combined cips output survey is a weighted average of the markit / cips pmis for services, manufacturing and construction. average mpc vote includes both decisions on bank rate and qe, with every extra £25bn of asset purchases ( gilts and corporate bonds ) treated as equivalent to a 25bp cut in bank rate ( see joyce, tong and woods, 2011 ). five years ago, the mpc recognised that past should not be prologue. the mpc was pretty certain there was a large amount of slack, although it had questions over how much productive capacity had been destroyed following the crisis ; how quickly productivity growth would recover ; and whether labour supply would change in the wake of reforms and a heavy burden of household debt. such uncertainties about supply meant that knowing what was happening to demand was no longer sufficient for gauging the appropriate policy response. the historic reduced - form reaction function of the committee, based on demand alone, would have been a poor guide to the expected path of policy. that is why the committee provided forward guidance that explicitly linked any potential change in interest rates to the unemployment rate – a clear and widely understood indicator of the degree of slack.

you. they include a vast, critical mass of markets and financial services in commercial and investment banking, securities and derivatives activity, investment and fund management, insurance and commodities and so on, involving an extraordinary concentration of the strongest financial businesses from all around the world. to give just one example, uniquely among the major countries we have more banks which are incorporated abroad operating in the city than domestic banks, and over half of the total deposits of the uk banking system is denominated in foreign currencies, worth over £1 trillion - - that ’ s a one and twelve noughts - - notwithstanding the current strength of sterling. the particular strengths that have contributed to this massive concentration of international business are many and various. they include : the english language ; the convenient time zone ; the ready availability of the relevant trading and other financial skills as well as professional support services - - in law, accountancy, tax, property, communications and so on. they include effective infrastructure. and they include importantly, too, an adaptive regulatory framework which has in fact been remarkably successful in maintaining confidence in financial institutions and markets without stifling innovation and risk - taking. all of these factors - - and no doubt others - - help to explain why some 600, 000 people are estimated to be employed in finance and other business services in greater london - - a number which i believe is roughly equal to the total population of frankfurt. now you will have noticed that none of these factors has anything to do with the question of the national currency used either here in the uk or in continental europe. the main impact of the advent of the euro on financial activity, as i see it, is that it will encourage the development of broader and deeper and more liquid markets, in financial instruments of all kinds, where they are currently fragmented because they are denominated in the various individual national european currencies. the city of london thrives on liquid markets regardless of the currency - - and it will thrive on the euro, whether the uk is “ in ” or “ out ”. measured in these terms the introduction of the euro represents an opportunity for london rather than a threat. i have no doubt whatever that there will be a vigorous euro - euro market in london, come what may, just as there is a vigorous market in euro - dm or euro - francs as well as euro - $ and euro - yen at present. the reality is that the location of financial activity does not depend upon the local currency. it