mervyn king : monetary policy developments speech by mr mervyn king, governor of the bank of england, at the best of the black country awards, wolverhampton, 16 november 2006. * * * the black country is where it all began. it began here for me because wolverhampton is where i grew up. as a boy, i remember the short train trip from wolverhampton to birmingham, through the heart of the black country, as a journey through manufacturing history. the flames from the blast furnaces lit up the grey sky on winter afternoons. “ black by day and red by night ” as the american consul in the midlands once described it. much has changed since then. it has been a difficult time for the black country. many of the companies we visited from school have closed. and the blast furnaces no longer light up the night sky. but the character of the black country has enabled the region to come through and enter a new era of regeneration. so i am honoured, and proud, to have been invited to join you tonight. the black country is where it all began – not just for me, but for the british economy. this was a centre of the industrial revolution – the first blossoming of manufacturing industry in the world. the coal and iron deposits found here were critical to the industrial revolution, and it was the output of nails and bolts, screws and fasteners produced from those ceaseless blast furnaces that made the black country synonymous with manufacturing prowess around the world. but that is not the whole story. just as important were the innate qualities of doing it yourself and perseverance which characterise the black country. there is no finer example than the iron bridge – the world ’ s first – at coalbrookedale, built in 1779. as one commentary noted, it stood as “ indisputable proof of the abilities of our mechanics and workmen ”. it reflected not just the local availability of coal and iron, but also the skills of those who built it. and it is those same skills that we celebrate tonight. local business success, recognised by these ‘ best of the black country awards ’, is the story of the black country being born again. the products of the 21st century may not be the nails and bolts, screws and fasteners of the past, but they will require the use of manufacturing know - how and business ingenuity to service the needs of consumers. i have been struck, as i travel to a different part of the

##olvencies have indeed increased rapidly. but how worried should we be from a financial stability perspective? a lot of this increase reflects insolvencies catching up after the moratorium. and, so far, the increase has mostly been driven by micro companies [ 2 ], which comprise the lion ’ s share of insolvencies but a small proportion of lender exposures. and much sme debt is government guaranteed covid lending, reducing risks to lender resilience, and comes with low interest rates and forbearance options, which supports borrower resilience. large corporates issue the majority of uk corporate debt, so any insolvencies in this space are more likely to transmit shocks to the financial system. so far, they haven ’ t seen the same increase in insolvencies as smes – perhaps because they have less floating rate debt, which shields them from the immediate impact of rate rises. the fpc monitors this risk by looking at the share of companies with low interest coverage ratios, a proxy for a company ’ s ability to service debt and a commonly used indicator of default risk. while the share of large companies with low interest coverage ratios has increased following the pandemic, it remains well below gfc levels. chart 2 : the increase in corporate insolvencies has been driven by micro firms monthly business insolvencies by size over time ( number of insolvencies ) ( a ) ( b ) ( a ) sources : the gazette and bank calculations. ( b ) an insolvency is recognised at the point a liquidator is appointed. micro firms have less than £316k in assets, small firms between £316k and £5m, medium firms between £5m and £18m and large firms above £18m. chart 3 : the debt - weighted share of low - icr firms has increased but remains below the gfc peak debt - weighted share of companies with interest coverage ratios below 2. 5 ( a ) ( b ) ( a ) sources : moody ’ s bvd, s & p global market intelligence and bank calculations. ( b ) these data refer to uk pnfcs only. the projected number for end - 2023 is based on the february monetary policy report. we use 2. 5 as a threshold as companies with interest coverage ratios below 2. 5 are materially more likely to experience repayment difficulties. we are also alert to risks not directly visible on balance