that in a low for long world monetary policy does not or cannot respond sufficiently vigorously to shocks to avoid macro - economic tail events that would severely stress a less resilient financial sector and more leveraged real economy. perhaps the most important lesson we learned from the crisis is that financial stability is a necessary condition for macro - economic and monetary stability. over longer time horizons there is no trade - off between the two. 27 but there is also some truth in the converse. financial stability depends in part on effective demand management. it can be severely tested by macro - economic tail events even when the financial sector itself is not the source of the shock. policy responses taken together, therefore, a low for long world is likely to be a more challenging environment for financial stability. the first and, in my view, most important policy conclusion to draw from this is the need for active and powerful macro - prudential institutions and policy. effectively used, in relation to both lender and borrower balance sheets, it can constrain risk taking or ensure that higher risk is accompanied by greater resilience. it can address pockets of higher risk as they emerge, as for example the financial policy committee has done in the uk in relation to consumer lending. 28 it can address mechanisms in the financial system that could first encourage an overshoot in risk taking and then amplify economic downturns. 27 the ‘ gdp at risk ’ framework for financial stability pioneered by the imf illustrates this point well. see international monetary fund ( 2017 ). 28 see bank of england ( 2017b ). all speeches are available online at www. bankofengland. co. uk / news / speeches it can also, through rigorous stress testing of the banking sector, ensure that banks have the ability to absorb losses in macroeconomic tail events. and it can operate counter - cyclically in downturns through the release of macro - prudential capital buffers in the core banking system. releasing buffers can have a powerful effect in a downturn by reducing the pressure on banks to cut back on lending and so avoid a credit crunch amplifying the macro - economic shock. such buffers have been part of the macro - prudential armoury for some years now though not all jurisdictions have used them. the question perhaps is whether that buffer needs to be made more powerful in a low for long world given the greater risk of severe downturns. the macro - prudential toolkit is not complete

median debt burden ratio ( the ratio of financial costs to gross operating profits plus financial revenue ) by between 2. 5 pp and 5. 6 pp ( from a starting point of 11. 6 % ), depending on the percentage of debt and loans that are refinanced in the near term. to put this into perspective, the percentage of employment accounted for by firms under high financial pressure2 would rise by 1. 6 % following the interest rate increase, from 9. 1 % before the hike. household income is primarily being supported by labour market developments – given the year - on - year increase of 3. 6 % in the number of persons employed and of 5. 1 % in hours worked – and, to a lesser extent, by the government policy support measures. however, high inflation is driving a significant decline in real disposable income. indeed, in 2022 h1 households ’ disposable income increased by 4. 2 % year - on - year in nominal terms, which transforms into a 3. 1 % fall once developments in the private consumption deflator are taken into account. bank lending to households has held stable in recent months. however, a distinction can be drawn between the performance of mortgage lending ( growing consistently at rates of just over 1 % ) and that of consumer lending ( shrinking at rates of around 4 % ). unlike firms, in 2022 households are not accelerating the growth of their bank deposits, which have been on a sustained growth path ( above 5 % ) since 2021. together with cash, they account for 40 % of households ’ total financial assets. simulations have also been carried out on the potential impact on household income of the rise in energy prices and interest rates, which is notably uneven across income percentiles. the upturn already observed in energy prices would generate an increase in the median household's energy expenditure as a proportion of its budget from 10 % to more than 12. 5 %. by way of comparison, energy expenditure represents around 7 % of the budget of higher - income households and the increase would be proportionally lower. a firm is understood to be under high financial pressure when its financial expenditure exceeds the sum of its gross operating profit and financial revenue. as regards the effect of the surge in interest rates, an increase of 300 bp, in line with that observed to date, would generate a 3. 9 % rise in the proportion of households with a high financial burden3 ( to 13. 8 % of the population