bank of england calculations. notes : the chart shows the rolling 12 month beta coefficient of a regression of the uk economic surprise index ( esi ) on daily changes of uk 3 - year interest rates, with a 95 % confidence interval. the esi is calculated as the weighted sum of data surprises across the uk, us, euro area, japan and china. the data series included in the esi, and the estimated weights are based on their historical relationship with daily changes in uk interest rates. the axis shows the impact of a 1 standard deviation data surprise on uk 3 - year interest rates. the dashed line shows the 2004 - 2017 average for the beta coefficient. all speeches are available online at www. bankofengland. co. uk / speeches references abel, w, burnham, r and corder, m ( 2016 ), ‘ wages, productivity and the composition of the uk workforce ’, bank of england quarterly bulletin, q1, pp. 12 - 22. bank of england ( 2016 ), ‘ factors affecting the prospects for long - term supply following the eu referendum ’, bank of england inflation report, august, pp. 29. blanchflower, d ( 2007 ), ‘ entrepreneurship in the uk ’, speech at the max planck summer institute on entrepreneurship research. blanchflower, d, costa, r and machin, s ( 2017 ), ‘ the return of falling real wages ’, cep real wages update, london school of economics centre for economic performance. bradley, j ( 2016 ), ‘ self - employment in an equilibrium model of the labor market ’, iza journal of labor economics, 5 : 6. bryson, a ( 2014 ), ‘ union wage effects ’, article for iza world of labor. chapman, b ( 2017 ), ‘ uk must combat unfulfilling jobs and commit to ‘ good work ’ economy, says matthew taylor ’, article in the independent. evans, c ( 2011 ), ‘ a risk management approach to monetary policy ’, speech delivered at the ball state university center for business and economic research outlook luncheon. gardiner, l ( 2016 ), ‘ a - typical year? ’, article for the resolution foundation. gregg, p, fernandez salgado, m and machin, s ( 2014 ), ‘ real wages and unemployment in the big squeeze ’, economic journal, 124 ( 576 ), pp. 408 - 432. hamilton, b, h ( 2000 ), ‘

of the risks? first, markets appear to be expecting macro outcomes that may be inconsistent with what economies need for medium - term sustainability. in the us, markets still expect – or hope – for some fiscal stimulus in the short - term, even though the economy is at full employment. what ought to matter is not the size of any stimulus but its composition. the key question is not how much the stimulus boosts demand in the short - term but whether and how it increases the medium - term supply capacity in the economy. similarly, in china, markets are keeping close track of quarterly gdp growth rates. what ought to matter more is whether efforts are being stepped up to achieve sustained growth over the medium - term – by reducing vulnerabilities in the system and implementing structural reforms. second, markets seem to be under - estimating the pace of monetary policy normalisation, particularly by the us fed. the fed ’ s guidance suggests one more rate hike in 2017, and three each in 2018 and 2019. but markets are pricing in less than three hikes in total for the rest of this year through 2019. granted – with lower oil prices and muted wage growth, the risk of inflation surprising on the upside is low. but what if that risk materialises, especially if the labour market tightens further? unemployment is already around its natural rate. past experience suggests that the pass - through from labour market tightness to inflation tends to accelerate as unemployment falls below the natural rate. that could well lead to a faster pace of monetary policy normalisation than the market currently anticipates. finally, there is a conundrum between volatility and uncertainty. why is volatility so low in financial markets when uncertainty is high on the policy front? perhaps it is because uncertainty about economic growth is lower. - the size and number of revisions to global growth forecasts have clearly come down. but surely, political uncertainty is at elevated levels? and when politics is uncertain, can the economics remain unaffected? a disorderly brexit could lead to increased market turmoil and trigger sharp asset price corrections. while the risk of increased trade protectionism seems to have abated somewhat, it remains a significant tail risk that could seriously injure global growth. against this backdrop, a rising tide of populist backlash against globalisation is a wild card for the medium - term. these risks are not pre - destined. the world is in a better position than before to deal with these risks. where we