little under one percentage point ; and of inflation at around two years, roughly 0. 5 percentage points. this is not a world in which one should get carried away by fine judgments that alter the central projection for demand by 0. 1 or 0. 2 percentage points. yet, as the bank has documented, 15 assuming that credibility is maintained, the effect of a surprise change in the official interest rate, is judged to be small ; maybe less than 0. 1 percentage point on the annual rate of inflation two years after a 25bp surprise change maintained for one year. of course, we are not in fact in the business of aiming to make surprise changes in our policy rate. against a background of credibility, a lot of practical monetary policy making is not about forestalling major lurches in the economy and inflation via large, abrupt changes in the policy rate. instead, it has to involve careful analysis of the conjuncture, with transparency to the market. but these numbers do perhaps illustrate the importance of our not getting drawn into absurd degrees of detail, and the risk of signalling that we think we can precisely fine tune demand conditions. how can we maintain and underpin credibility? the following seem to be ingredients. being very publicly committed to anchoring medium - term inflation expectations in line with a clear target, above all else. inflation outturns being, on average, in line with the target. and being seen to be committed to the essentially technical job of professional economic analysis of conjunctural conditions and the underlying structure of the economy. typically moving our policy rate in steps of 25 bp seems to have been useful in conveying the break with the past. perhaps because it conveys that things are ‘ under control ’. the counterpart to that is being understood to be ready to do whatever it is necessary to maintain well - anchored inflation expectations. policy strategy, risk management, and communication if the key tasks are anchoring inflation expectations and, with less weight, stabilising demand conditions, how do central banks go about their policy job? at the bank of england, in both our published projections and our policy decisions, we emphasise the risks around the ‘ central outlook ’. and although some of the presentation is different, that is on the same page as what former chairman greenspan called the ‘ risk management ’ approach to policy. in my experience, it is not sensible to respond to all possible risks, even some that would have a big impact if they crystallised

- leveraged. and structural change will create opportunities for new enterprises, often better financed with equity than debt. in his june remit letter to the chancellor, the governor made the case for introducing more equity, or more equity - like finance to the mix. 3 equity issuance by public listed companies is already strong and at its highest level so far this year compared to the same point in any year in the past decade. 4 with their long - term liabilities, insurance companies and pension funds are well suited investors in growth capital. for some time now, insurers have been increasingly turning to illiquid assets for a good return on their investments at a time of historically and enduringly low yields. this trend has been most noticeable for annuity providers, incentivised by the matching adjustment ( ma ) to invest in assets that, perhaps with some restructuring, mirror the illiquid nature and fixed cashflows of their liabilities. but much of this investment has been in, or backed by property. uk insurance companies only allocate around 2 % of their assets to unlisted equity. 5 this is a smaller share than many of their european peers. but liability structures are very different between national markets too, which will contribute to differences in asset allocations. the regulator ’ s concern here is to ensure that any increase in insurers ’ asset allocations to long term, productive investments does not endanger policyholder protection, that is to say does not compromise the first, equally important function of life insurance that i set out earlier, namely the provision of security of retirement income. 6 annuities are not a good match for investments with equity - like characteristics. a fundamental principle of the ma is that some of the market risk on the backing assets is neutralized, by virtue of matching. that can never be the case with a long term real asset like common equity, and no amount of clever restructuring will alter that. much of the new productive investment needed will be financed outside matching portfolios and indeed outside insurance. that said, any reform of the ma that might arise from the solvency 2 review might nonetheless play a part in unlocking more funding for things like infrastructure. in its current manifestation, the ma was designed and calibrated with simple, fixed, tradable assets in mind. we have been flexible in our implementation, but the size of the benefit offered by the ma and the relatively coarse framework for measuring levels of retained asset risk have necessitated