at the current juncture. those uncertainties include not only the spending of households and businesses here in the united kingdom, but also the evolution of demand abroad. in particular, while the euro area overall has exhibited decent growth in recent quarters, the countries of the periphery are struggling with a mixture of fiscal, banking and competitiveness problems. there is a risk that this could lead to imports of aircraft were temporarily high in 2010 q4 reflecting the forthcoming change in vat treatment, but the data were still encouraging even after allowing for the resulting distortion to import growth in 2011 q1. bis central bankers ’ speeches renewed banking sector turbulence and a hit to confidence more generally, with adverse consequences for us. even though our central projection has growth returning to around its historical average rate, that would still leave the level of activity well below a continuation of its pre - crisis trajectory ( chart 5 ). that makes it unlike normal downturns, in which the economy usually experiences a period of above - average output growth during the recovery period, thus making up much of the lost ground. the tendency for economies to suffer substantial persistent losses relative to a continuation of their pre - crisis trajectory is a common feature of downturns after banking crises. that is illustrated in chart 6, which shows the spread of outcomes for the shortfall of output relative to a continuation of its pre - crisis trajectory across 88 past banking crises in different countries3 ; the blue swathe covers the central 50 % of cases, while the grey swathes take in the central 80 % of cases. there is a considerable diversity of experience, but the average outcome – given by the purple line in the middle of the swathe – shows a persistent output shortfall of about 10 %, even seven years after start of the crisis. in other words, the typical banking crisis results in a substantial persistent depression in activity relative to what might otherwise have taken place. the red line shows the central path for the level of output, relative to a continuation of its pre - crisis trend, from our most recent projections ( the dash denotes the forecast period up to and including 2013 ). as you can see, that path lies quite close to the average experience from this sample of past banking crises. there are a number of reasons why output losses after banking crises have tended to be much more persistent than after normal economic downturns. first, banks and highlyindebted households and businesses need to get their balance sheets back in order, typically resulting in a period of

persistent, factor is the pace of technological change. related to that, we are seeing a trend towards consolidation – at first nationally, but now also internationally – amongst financial services providers. so i also want to make a few remarks about these factors. before i go into these issues in more detail, i just want to sketch out how the bank stands in relation to uk financial services. obviously the changes in the bank ’ s remit announced in may 1997 by the incoming labour government, and largely enshrined in the 1998 bank of england act, were profound ones. the arrival of monetary independence meant that the work of the mpc – of which i am one of the nine members – has scarcely been out of the news. less obtrusively, the departure of banking supervision to the new fsa meant the end of one substantial – though actually comparatively recently acquired – function ; and the shift of debt management to the dmo brought to an end another, much older one. so does the “ new ” bank have a new relationship with the financial services sector? let me first say that, though the bank has been through a period of profound change, its core purposes remain the same. one is obviously to promote monetary stability ; and there our role is now much more substantial and overt. but the bank has two more core purposes, and both relate directly to the financial services sector. the first is to promote the overall stability of the uk financial system. this role is not new, though it has recently been set out explicitly in the memorandum of understanding between the bank, hmt and the fsa. broadly, promoting systemic stability means working to ensure that the financial system continues to perform its key roles in support of the wider economy – settling transactions, providing liquidity and allocating savings. in pursuit of this we look at factors affecting the underlying robustness of the financial system, as well as potential “ triggers ” which, especially at times of structural weakness, could bring on a crisis. our remit is of course in relation to the uk financial system – but this work has a substantial international dimension, given the openness of the uk economy, and the international character of much of the city. what does this mean in practice? the bank ’ s financial stability work include such things as overseeing the uk payments systems ; analysing broader developments in the banking, securities and insurance sectors, and the evolving strategies of london ’ s securities exchanges ; looking at developments in emerging market economies ; and