policy is transmitted. understanding how businesses make investment decisions informs our understanding of the monetary transmission mechanism. on the financial stability side, our aim is a resilient financial sector that can support the economy even in times of stress. diversity and robustness in the channels of finance to the real economy increases resilience. that is why we are interested in the way firms finance investments and the constraints they may face. and, of course, we have a secondary objective to support the economic policy of the government. the work i have been drawing on today is part of our work to support the government ’ s productivity agenda and will i hope be helpful in developing policy responses that go wider than the bank ’ s primary objectives. so while the bank of england may not be as directly – or reluctantly – involved in the provision of liquidity and finance to the midlands economy as we were in geach ’ s day we remain very much engaged in these issues. all speeches are available online at www. bankofengland. co. uk / speeches th our birmingham office, which celebrated its 190 birthday this year, no longer discounts bills of exchange in competition with the midland bank, which is itself soon to return to birmingham. rather it is our eyes and ears in the region. along with our network of agents'offices in other parts of the country it helps us to understand what is going on, on the ground, in the economy. indeed, the large and representative survey i have drawn on so heavily today, was only possible through our agents'network using their contacts with firms. i hope charles geach would have been pleased. thank you. all speeches are available online at www. bankofengland. co. uk / speeches

the economy. but on the other hand, the main business surveys suggest that there is little spare capacity within businesses ( chart 10 ). moreover, the expansion in output since the trough has been met by an increase in employment, rather than by productivity growth. coming to a judgment about the degree of spare capacity in the economy is therefore difficult – but at the same time crucial. given the scale of the numbers involved, small differences in the judgment about the relative roles of cyclical and structural explanations for the recent path of productivity can have enormous implications for one ’ s views of the risks to inflation. chart 9 chart 10 whole economy labour productivity per hour ( a ) survey measures of capacity utilisation by sector indices : 2006 = 100 path implied by a continuation of pre - recession trend whole economy productivity per hour ( a ) the pre - recession trend is calculated by projecting forward labour productivity from 2008q2 using the average quarterly growth rate between 1996q1 and 2008q1. sources : bank of england, bcc, cbi, cbi / pwc and ons. ( a ) includes measures of services capacity utilisation from the bank ’ s agents, bcc and cbi. the cbi measure weights together financial services, business / consumer services and distributive trades surveys using shares in nominal value added. the bcc data are non seasonally adjusted. ( b ) includes measures of manufacturing capacity utilisation from the bank ’ s agents and cbi, and a measure of non - services capacity utilisation from bcc. the bcc data are non seasonally adjusted. personally, i believe that there is a significant margin of slack in the economy – you need only look to the labour market for evidence of that. but it is also likely that there is less slack in the economy than implied by the deviation of productivity from its pre - crisis trend. looking ahead, the degree to which the margin of slack is eroded will depend on the outlook for demand. if demand recovers strongly, that would close up the degree of slack in the economy. but if demand stays weak, then potential supply will gradually respond downwards, also closing the margin of slack ( although that process would probably be slower than if it was faster demand growth doing the work ). bis central bankers ’ speeches the risks from inflation expectations are also difficult to assess, principally because we do not have good data on the true expectations of businesses and wage bargainers, only what they record in surveys