about expectations. this is of particular relevance for the current inter - regnum, the period following the referendum but before brexit itself. at least until the formal departure date what people expect of it is the main way – arguably the only way – in which it can affect the economy. this is an obvious point. but i think we should pay it some heed, not least because it ’ s unclear how these expectations will evolve. if it ’ s not a unique event brexit is certainly an exceptional one. people haven ’ t much history to go on. it ’ s therefore reasonable to imagine that predictions about its consequences might chart 4 : share prices of uk - focused companies have underperformed vary over time : we will all of us learn more about its effects as brexit unfolds. it ’ s also understandable if these expectations differ across the population. it ’ s clear that financial markets have relatively pessimistic expectations. since the referendum share prices of uk - focused companies have significantly under - performed both their international peers and those of companies quoted in the uk but whose earnings come from overseas ( chart 4 ). sterling ’ s exchange rate has also fallen very sharply. as sources : thomson reuters datastream and bank calculations. i said in a talk earlier this year, i think this is because the foreign exchange market has decided that leaving the eu chart 5 : simple theory says the saving rate will reduce productivity in the uk ’ s tradable sector or should rise in anticipation of weaker income raise its costs in some other way. but it ’ s far from clear that, as measured by their actual spending patterns, expectations among households are anything like as pessimistic. chart 5 is an extremely stylised representation of how, in the simplest models used by economists, consumption responds to negative news about future income. in this set - up consumers are assumed to want to smooth their spending. rather than responding to every temporary up and down, they match this is also true of the supply effects i discussed earlier : if supply chains were to unwind or firms to relocate before 2019 this would be in response to their expectations of the new trading arrangements. ratio of prices to 12 - month - ahead earnings forecasts. uk - focused defined as firms that generate at least 70 % of their revenues here. broadbent ( 2017 ). all speeches are available online at www. bankofengland. co. uk / speeches their spending to what they expect their

deleveraging ’, remarks given at market news international, london, on 15 march 2012. http : / / www. bankofengland. co. uk / archive / documents / historicpubs / speeches / 2012 / speech553. pdf all speeches are available online at www. bankofengland. co. uk / speeches lenders ’ own assessments of how risky these loans are, which they use to calculate how much capital they need to withstand losses, have fallen. over the past two years, these ‘ risk weights ’ on credit card loans have fallen by 7 % and those on other consumer loans by 15 % ( chart 11 ). this improved performance doesn ’ t reflect a tightening up of lending standards. credit scores of new borrowers are actually a little lower than they were 2 years ago ( chart 12 ). instead, the improved performance of borrowers reflects the environment of continued employment growth and easier credit terms. lenders have been the lucky beneficiaries of the benign way the economy has evolved. in expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions. car finance car finance has drawn particular attention, with growth of 15 % in the past year and more than 100 % in the past 4 years. the way we buy cars has been transformed. personal contract purchase ( pcp ) plans accounted for one in five new car purchases in 2006. now they finance almost four in five ( chart 13 ). at the aggregate level, pcp is the new cash purchase. the financial conduct authority, which regulates car finance, has expressed its concerns about a lack of transparency, potential conflicts of interest and irresponsible lending in parts of the car finance industry. it will explore and address those practices. the bank of england ’ s role is to manage any risks to the wider economy from this growth. and those should be kept in perspective. on average, those taking out pcp plans tend to have higher incomes and more savings than the population as a whole. 70 % of pcp borrowers have above average income ( chart 14 ). arrears rates on banks ’ car finance deals are lower than on other forms of consumer credit. moreover, the true burden of car finance to households overall is much lower than it seems at first glance. financial conduct authority ( 2017 ) ‘ business plan 2017 / 18 ’. https : / / www. fca. org. uk / publication /