do act as intermediaries in the transactions, but it is the behaviour of the ultimate seller that matters for the economic impact. bis central bankers ’ speeches the upbeat retail sales figures announced at the end of last week may be a sign this is already starting to happen. but while growth should gradually strengthen, the continuing headwinds from the unwinding of excessive debt and the government ’ s continuing fiscal consolidation mean that the pace of recovery is likely to remain moderate by historical standards. as a consequence, a margin of unused capacity and labour in the economy is likely to persist for some while yet, helping to ensure that domestically generated inflation – presently running around 1½ %, depending on exactly how one chooses to measure it – should stay subdued. indeed, in the absence of the extra £50 billion of gilt purchases announced two weeks ago, we judged that inflation would be rather more likely than not to undershoot our 2 % target in the medium term. that was why we decided that it was necessary to do more. moreover, the longer capacity lies idle, the more likely it is to be scrapped completely. and the longer people are out of work, the more likely they are to become disconnected from the labour market altogether. so there is an added incentive to getting the recovery back on track quickly. the euro area represents the biggest single downside risk to this picture. greece is the country in the headlines right now, but several countries of the euro - area periphery face, in varying degrees, a challenging mixture of unsustainably high public and / or private indebtedness and weak competitiveness. correcting those problems requires : fiscal consolidation ; bank recapitalisation ; and a rebalancing of demand towards net exports. the first two are under way, but the third is harder to achieve in a monetary union where no exchange rate movement is possible to bring about the necessary improvement in international competitiveness. at best, these countries face an extended period of very low growth while the necessary adjustments take place. and while this morning ’ s agreement between the greek government and the euro - area authorities is certainly welcome, there still remains a possibility that events could unfold in a disorderly and damaging fashion at some stage in the future. the linkages to the united kingdom from such a disorderly outcome would be threefold. first, and most obviously, almost half our exports go the euro area, so weak growth there has a rather direct spillover on to us. second

fiscal consolidation and de - leveraging even more challenging. and by providing a gloomier climate for business, it would also inhibit investment and slow the necessary re - balancing of our economy towards manufacturing and internationally tradable services. treating serious medical conditions often has unwanted side effects. but, unpleasant as those side effects sometimes are, treatment is invariably better than the alternative. so it is with the economic medicine of low interest rates and quantitative easing. the immediate consequences may be unpalatable, but the sooner we can get the economy on the mend, for a single male, aged 65. indeed, if the savings were held in bonds of a maturity structure that matched the likely longevity of the individual, the two effects would cancel each other out. bis central bankers ’ speeches the sooner we can return policy to more normal settings and the better it will be for all of us – savers, businesses and employees alike. thank you! bis central bankers ’ speeches