and business spending may be beginning to abate. corporate liquidations and unemployment : better than feared the prompt and large policy actions are likely to be one reason why corporate failures have, to date, not increased by as much as might have been feared. although output has fallen by more than in either the 1980s or 1990s recessions, liquidations have risen by less than at the same stage of those downturns. companies have benefited from the fall in debt servicing costs associated with the sharp reduction in bank rate and by the government scheme allowing them to defer tax payments. and by supporting corporate credit markets, the bank ’ s asset purchase programme has also helped some firms to bypass banks and access capital markets directly. i fully recognise that the asset purchase programme has not been as of much help to many small and medium - sized enterprises – many of whom are represented here today – who are not able to access capital markets and are largely reliant on bank credit. however, i would contend that even the sme sector has benefited indirectly from the programme of asset purchases, such as from the accompanying fall in libor rates. in a similar vein, although there has been a substantial fall in employment over the past year or so, the extent of the job losses to date has, if anything, been less than we might have feared given the falls in output. this may partly reflect the greater degree of wage flexibility that has been apparent in this recession compared to that in either the 1980s or 1990s. 2 a substantial element of the workforce appears to have been able to protect their jobs by accepting slower wage growth. by comparison with the past, these relatively limited increases in liquidations and unemployment are likely to have been important in mitigating the severity of the downturn. large numbers of corporate failures are very damaging to the economy, with the loss of the skills and experience that firms have built up over the years, as well as of their investment in machinery and equipment, and with the shedding of jobs. indeed, the relatively muted increase in company liquidations in this recession may have helped to limit the falls in employment. moreover, the fact that more of the burden of firms ’ adjustment to the recession has been spread over the workforce as a whole in the form of lower wages, rather than being concentrated on those losing their jobs, is likely to have lessened the fall in consumption. this is both because households may find it easier to borrow to smooth their consumption if they still have a job and because it

may have limited the extent to which households increased their savings as a precaution against the possibility of future job loss. structural adjustments but the response of policy and the emerging recovery should not obscure the fact that structural adjustments need to occur in our economy. the banking system faces a significant for more information see the box on page 29 of the august inflation report. challenge to wean itself off the current substantial levels of official support and to return to a position in which it can lend normally. households may need to re - evaluate their financial positions in the face of the more uncertain economic environment. and the need for a substantial reduction in the fiscal deficit is clear. monetary policy cannot and should not prevent those adjustments from happening. they are necessary for the long - run health and stability of our economy. rather, the job of monetary policy is to ensure that these adjustments occur in as orderly a manner as possible and within an economic environment which is consistent with hitting the 2 % inflation target. prospects for 2010 and beyond so what does the next year hold in store? the economy appears to have turned. although output is estimated to have contracted in the third quarter of this year, there is a range of evidence from business surveys, from the bank ’ s regional agents, and from recent indicators that the economy has begun to stabilise and that we are likely to be moving into a period of renewed expansion. whenever an economy is in recession, especially a recession as deep as this one, it can be hard to see where growth will eventually come from. however, as i have discussed, the easing in monetary and fiscal policy is providing considerable support to the emerging recovery. that stimulus is reinforced by the substantial depreciation of sterling. sterling is around a quarter below its mid - 2007 level and – as many of you here today will know from your own experiences – this has helped to improve the ability of uk companies to compete in both overseas and domestic markets. output will also receive a further fillip as the adjustment of inventories by companies runs it course. however, the on - going structural adjustments that i mentioned are likely to give rise to a number of economic headwinds that may impede the recovery. credit conditions are likely to remain tight for some time as banks repair their balance sheets. and the need for public and household finances to adjust to the changed economic environment will weigh on spending. balancing these factors, my view of the outlook for gdp growth is in line with the projections contained in the bank ’ s