an important mechanism for describing the forward - looking view though it should continue to evolve from a binary pass - fail world into one where it is a toolkit to test a range of possible future states of the world and thereby judge the wider resilience of firms. the pra will exercise judgement in the supervisory actions it takes, so that firms are likely to be able to meet its objectives, policies and rules over the medium term horizon. firms will need to demonstrate to the pra that they are robust to a variety of states of the world, including unanticipated stress scenarios. however, since it is not possible for any forecast to cover all possible outcomes, there will always be some probability of firms failing. working with the bank of england ’ s resolution team, the pra will need closely to integrate recovery and resolution planning within its supervision ; and in my view should embed a proactive intervention framework akin to the us prompt corrective action within its supervisory approach to deal with the inevitable situations where firms get into the danger zone. above all, these tools should support competition in the industry, by accepting that there will be winners and losers. in two years ’ time, we will have a new system of financial regulation in the uk. those of us involved can assure you that the transition is not a small task, but i can also assure you that the bank is fully committed to working with the fsa to ensure a smooth transition. there is a great deal to be done to implement the new system of regulation, to articulate and build the public interest in financial stability, and thereby to improve the stability of the system itself. basel iii, macroprudential tools, countercyclical buffers, are all things that adair and i get excited about. they are important foundations of good policy. but on their own they don ’ t win the public interest argument for financial stability. to do that, we have to build the case that the industry will serve the needs and interest of the public. the authorities cannot do this alone. building confidence in the financial system takes effort and time. it is a common goal and in the interest of everyone. lord mayor, the government of the city of london is an important part of the fabric of financial services, and we appreciate all that you do to support the industry and the objective of stability in the financial system. it is therefore my great pleasure to propose a toast to the lord mayor and lady mayoress.

starting in the final quarter of 2009 – though the estimates of real gdp growth that we currently have over the recovery period are very provisional and may indeed be revised in the future. that is what happened in the early 1990s recovery, where the picture we now have of growth in the early stages of that recovery – in 1992 and 1993 – are very different from the initial estimates. one of the concerns that the mpc had a year ago when policy was being loosened was the sharp fall in measures of nominal demand – the growth of spending in money terms, before adjusting for inflation. as the recession took hold, gdp and other measures of demand not only fell in real terms, but they fell in nominal or money terms too. one of the key reasons for embarking on the policy of quantitative easing was to reverse this downward shift in money spending, which would have pulled down inflation sharply if it had continued. as chart 3 shows, this trend in nominal demand has indeed reversed. gdp and domestic demand measured in money terms rose at an annualised rate of around 5. 5 % in the last 3 quarters for which we have data, and total final expenditure – which also includes export demand – grew by nearly 7 %. on all the three main measures of nominal demand, growth is now back to or above the pre - recession average rate. this is a rapid turnaround from the sharp falls seen in late 2008 and early 2009. chart 3 : uk nominal demand growth percent 1997 q1 - 2007 q4 average 2009 q3 - 2010 q1 average ( annualised ) gdp domestic demand total final expenditure note : domestic demand defined as public and private consumption and investment spending source : office for national statistics business surveys are also showing a generally positive picture. chart 4 shows the latest responses from the british chambers of commerce ’ s survey – which points to a particularly strong rebound in manufacturing, with a slower recovery in the services sector. but both manufacturing and services are showing a return to growth, alongside positive expectations that the recovery in demand will continue. chart 4 : bcc survey activity indicators balance reporting increased sales / deliveries services manufacturing - 20 - 40 - 60 mar - 07 sep - 07 mar - 08 sep - 08 mar - 09 sep - 09 mar - 10 note : sales / deliveries relate to domestic market source : british chambers of commerce ( bcc ) the cbi ’ s most recent surveys show a similar picture, with manufacturing industry bouncing back strongly alongside a muted recovery in the services sector ( see chart 5 ). according