- point was + 15 %. the likely accuracy of these expected responses is extremely unclear. but “ no deal ” expectations are already affecting financial markets. as the perceived probability of a “ no deal ” brexit has risen, sterling has weakened and uk short - term interest rates have shifted downward ( chart 31 ). having expected rates to rise modestly at the time of the may inflation report, financial markets now expect uk interest rates to fall over the next year or so, before rising gradually. all speeches are available online at www. bankofengland. co. uk / speeches chart 31 : uk short rates per cent 1. 75 1. 5 1. 25 0. 75 0. 5 0. 25 latest ( cob 18 july ) may 2019 ir sources : bloomberg lp and bank calculations. notes : may 2019 ir line refers to 15 - day average curve used to condition the may inflation report projections. this forward path of interest rates is, in practice, a rather peculiar one. it is likely to reflect a probabilityweighted mix of two quite different possible outcomes for the economy – a “ deal ” scenario in which the economy grows and a “ no deal ” scenario in which some expect it could shrink. in that sense, the market path of interest rates is not an accurate reflection of the most likely path of interest rates. to illustrate, consider a simple thought - experiment. assume, in the event of a “ no - deal ”, the economy followed the course expected by companies in chart 30. assume also, in that event, that monetary policy followed a simple taylor rule and that inflation was unaffected. 29 these are clearly very stylised assumptions. nonetheless, on those assumptions, a taylor rule would suggest interest rates would need to be cut sharply to their zero bound, to cushion the hit to growth. if we do the same thought - experiment under the “ deal ” scenario, again using a simple taylor rule, we get instead an upwards - sloped trajectory for expected interest rates, on average 25 - 50 basis points higher than the slightly upward - sloped market path for interest rates prevailing in may. clearly, these are two very different interest rate trajectories, reflecting two quite different brexit economic outcomes. 30 in the event of a ‘ deal ’, upward pressure on demand would also likely be accompanied with a stronger exchange rate, so the ex - ante impact on inflation is ambiguous. my mpc colleague, jan vlieghe, made a

mainland has continued to grow. and we provide global investors with a familiar, trusted point of access to mainland markets. that ’ s why about two - thirds of the mainland ’ s two - way capital flows consistently go through hong kong. 25. some argue that this advantage is temporary. as china ’ s domestic capital markets open up, the argument goes, surely international capital can bypass hong kong and go directly to shanghai and shenzhen? 26. it is true that the mainland authorities are pursuing further liberalisation of the onshore capital markets. this was evident in a series of reforms to the qualified foreign institutional investor regimes last year. access to the china interbank bond market has also been enhanced, making it easier for investors anywhere to directly access this 16 trillion us dollar market. 27. and yet hong kong ’ s own portal to mainland bonds is more popular than ever. orders going through our bond connect link to china ’ s interbank bond market account for more than half of its turnover by foreign investors. more than 2, 400 institutional investors are registered on the platform. and bond connect has continued to grow right through the social unrest and pandemic : volumes rose by 82 per cent in 2020. 28. hong kong ’ s two stock connect links – with shanghai and shenzhen – are also very popular with international investors. average daily turnover on stock connect more than doubled last year. ‘ northbound ’ traffic from here to the mainland rose by 119 per cent. this reflects continued global demand for chinese securities as their weighting in benchmark indices increases. 29. and investors choose stock connect for the same reason they choose bond connect. through hong kong, they can enter chinese markets on a platform that is proven and familiar, using english - language documentation and applying international norms and practices. 30. the opening - up of various channels into china ’ s domestic markets gives options to international investors. they can choose to have an onshore presence and trade directly in the local market. or they can continue to use hong kong as their base if it makes sense for their strategy and resources. 31. the fact that the majority of foreign investors access the mainland capital markets using the two connect schemes speaks volumes about the unique value proposition of the hong kong platform. in recent years, that financial connectivity has been boosted by increasing ‘ southbound ’ traffic from the mainland to hong kong. 32. it is well known that hong kong is the leading hub for mainland enterprises looking to issue equity or debt in the international market. that activity continued to