in the qis is a proposal itself, and we would discourage commentators from trying to discern a ‘ central view ’ from the way the qis will be formulated. the truth is that there is not yet a settled ‘ central view ’ on the areas we are testing, and this is why it ’ s so important to gather good quality data – to help to form robust and evidencebased policy proposals that can be consulted on in due course. we would not want the exercise to be taken as a signal for future decision making. the other thing to be upfront about is that we know the qis will require significant resource from firms. we will be asking for high - quality data from a wide range of firms covering different parts of the framework, and in a relatively short period of time – three months or so. we are only asking this because of how important the exercise will be in determining the eventual policy proposals, and because of the understandable enthusiasm of firms to get on with the reform – enthusiasm which we share. but i ’ ll say now, if there are aspects of the timetable which firms are going to struggle to meet, we would like to understand that at an early stage – so we would welcome feedback on any barriers to providing high - quality data as soon as possible. the qis will focus on areas of potential policy change which are the easiest to quantify and have a more obvious immediate balance sheet impact. the bricks, windows and foundations of the structure. there are other areas, less easy to quantify but no less important, which are also in scope of reform. i ’ ll cover those briefly at the end of this speech. but starting with the bricks and mortar : risk margin 3 / 6 bis central bankers'speeches firstly the risk margin. there is, i think a consensus in the uk that the risk margin as currently designed is not doing its job correctly. the risk margin is there to provide a margin over the best estimate of liabilities on the regulatory balance sheet, so that the total technical provisions represent an estimated transfer value. the principle for the risk margin is sound, and is widely accepted. but as we have made clear before, we see significant scope for reform. in particular, the risk margin is too sensitive to interest rates. and under current interest rate conditions it is too high. many annuity writers are choosing to reinsure longevity risk from their balance sheets but retain credit risk. there are a number of reasons why this can be economically attractive for

“ divine coincidence ”. things are different when shocks drive inflation up or down independently of demand. exogenous changes in firms ’ pricing power are one example – so - called cost - push shocks. shocks to the exchange rate, the economy ’ s supply capacity, or commodity prices also have this flavour. because monetary policy ’ s influence on inflation is predominantly an indirect one, via demand, in such circumstances inflation can only be controlled by delivering an opposing movement in aggregate spending. if something pushes up on inflation directly, monetary policy can only bring inflation back down by causing a reduction in spending via higher interest rates. the speed with which this adjustment is delivered is determined by the monetary policy maker guided by their remit. such circumstances have characterised the period in the uk since the global financial crisis ( chart a1 ), which entailed a large adjustment to the supply side of the economy, meaning a lower exchange rate, lower growth, and higher inflation. in contrast, the us and the euro area have seldom faced a trade - off between output and inflation stabilisation, even since the global financial crisis ( charts a2 and a3 ). all speeches are available online at www. bankofengland. co. uk / speeches chart a : divine coincidence has continued to reign in the euro area and us post - crisis but not the uk a1 ) uk great moderation inflation ( % ) financial crisis and after inflationary, with trade - off inflationary, no trade - off - 6 - 5 - 4 - 3 - 2 - 1 excess demand ( % ) disinflationary, no trade - off disinflationary, with trade - off - 2 sources : ons and bank calculations. a2 ) us great moderation financial crisis and after inflation ( % ) - 8 - 7 - 6 - 5 - 4 - 3 - 2 - 1 excess demand ( % ) - 1 - 2 sources : bureau of economic analysis, cbo and bank calculations. notes : the measure of inflation is the four - quarter change in the personal consumption expenditures ( pce ) deflator. the output gap is calculated using the cbo estimate of potential output. all speeches are available online at www. bankofengland. co. uk / speeches a3 ) euro - area inflation ( % ) great moderation financial crisis and after - 4 - 3 - 2 - 1 excess demand ( % ) - 1 sources : eurostat, imf and bank calculations. notes : the measure of