pressure of demand on inflation in any one single measure, particularly in an open economy like the uk where both domestic and international factors have a bearing on the rate of increase in costs and prices. chart 10 survey measure of businesses ’ price expectations balance of respondents expecting higher prices, bcc survey manufacturing services - 10 - 20 - 30 source : british chamber of commerce see sentance ( 2011 ) for example. for example, orphanides and williams ( 2005 ) argue that changes in the unemployment rate provide a better guide to demand pressure than the level of unemployment because of uncertainty about the equilibrium rate of unemployment. bis central bankers ’ speeches what we can observe more clearly is how the pricing intentions of businesses and the rate of price increases they are able to secure are responding to changes in the demand climate. and this evidence does not seem to support the view that the pressure of demand is bearing down heavily on inflation at present in the uk, even when allowance is made for cost increases. chart 10 shows a survey - based measure of pricing intentions from the surveys conducted by chambers of commerce around the uk. this shows that expected price increases are currently running at relatively high levels in both manufacturing and services, and that there has been a significant turnaround in the pricing climate since the trough of the recession in 2009. another indicator which suggests that domestic demand pressures are exerting limited downward pressure on inflation at present is the rate of inflation in the services sector. in contrast to goods – which tend to be traded internationally – the services sector is more heavily oriented towards the domestic market. so if the margin of domestic spare capacity or weak demand in the uk economy is pushing down on inflation, we should see this reflected more clearly in measures of services sector inflation. chart 11 resilient services inflation in uk annual percentage change in consumer and producer prices consumer prices producer prices - 1 source : ons instead, as chart 11 shows, services inflation – whether measured by the prices charged by firms or the prices faced by consumers – has been remarkably resilient. after a short dip in the aftermath of the recession, price increases – whether measured by consumer prices or producer prices have returned relatively quickly to the levels we saw in the mid - 2000s. and if we look at the services component of the consumer prices index, this 3 – 4 % level rate of inflation has been a fairly consistent feature in the decade prior to the recession. there is not much evidence here of spare capacity and weak demand pushing down on services inflation. and whereas relatively high

the financial system as a whole rather than just the “ micro ” regulation and supervision of the firms and the markets that go to make up the system. in doing so, i want to review the progress of macroprudential policy and the fpc of the bank, which is the uk macroprudential authority. have we built a more resilient financial system and one that can provide the financial stability that is essential for sustainable economic growth? i hope i will be able to show that while many of the problems we face and the tools we have are familiar, the development of macroprudential policy and the fpc since the crisis is not just old wine in new bottles. there is new and important wine here also. the bank and financial stability the bank of england is not, of course, a newcomer to this scene. in the centuries following the bank ’ s creation in 1694, the british financial system mushroomed as the industrial revolution took hold and the empire grew. as the financial system grew, so did the incidence of crises and panics that required the bank – often reluctantly – to intervene. in the financial crisis of 1825 – a crisis attributed by many to low interest rates, abundant liquidity and a bis central bankers ’ speeches search for yield that drove investors into emerging market bonds – england was said by one observer to be “ within 24 hours of a state of barter ”. to get liquidity into the system and restore confidence, the bank according to one of its directors “ lent money by every possible means and in modes we had never adopted before ”. again, much of this sounds eerily familiar. the bank since its inception has been at the centre of the response to every financial crisis in the uk. and since its inception, the bank has played a role in shaping the development of the financial sector in the uk and using its influence to promote financial stability. for much of its history, that role was not one of statutory regulation and supervision. the bank exercised its influence behind the scenes on the small club of actors that dominated the financial system. indeed, the uk came rather late to the idea that banks and financial firms needed to be regulated by law rather than steered by the eyebrows of the governor of the bank of england. the macmillan committee ( 1931 ), which inquired into financial policy in the wake of the wall street crash, did not advocate statutory regulation. rather it endorsed the informal role of the bank in guiding the banking sector, commenting that “ financial policy