an extraordinary 45 % of its national income each year, it saves even more than this - 49 % of national income in 2004. the resulting current account surpluses have been saved overseas, much of them in us government bonds. so, rather surprisingly, capital is flowing from some of the poorest countries of the world to some of the richest. moreover, the rise in oil prices has raised the incomes of oil - producing countries, which have also chosen to save much of their additional revenues in overseas financial assets. those surplus savings have depressed long - term real interest rates. in the industrialised world, consumers have realised that this is a good time to borrow and spend, resulting in the “ imbalances ” evident in the current account deficits of both the us and the uk. whether long - term real rates around 1 % are sustainable is an interesting question, and that uncertainty poses serious questions for monetary policy. on the one hand, the increased propensity to save across the world could start to unwind. as their people become more prosperous, domestic demand in china and elsewhere in asia will become the primary driver of those countries ’ growth, so they may want to save less. and business investment in the developed economies, which has been weak in recent years for reasons we do not fully understand, may pick up as in previous recoveries. the resulting rise in real interest rates and implied fall in asset prices would encourage the industrialised world to save more. that would mean a shift of resources in those countries away from domestic demand to net trade accompanied by a change in real exchange rates. the “ imbalances ” in the world economy would start to unwind. where that would leave sterling and the outlook for inflation in the uk is impossible to know in advance. on the other hand, it is quite possible that real interest rates could remain low for some time. although there are signs of a pick - up in business investment in the us and euro area, investment remains weak in the uk and a recovery of world investment spending is not assured. the growing recognition that increasing longevity will mean we need to save more for retirement may sustain or even lift world saving rates. and pension funds are now matching the risks of their assets with the risks of their future liabilities, thus raising the demand for safer long - term financial assets such as index - linked government bonds. economists have long found it difficult to explain why, given the risks of equity investments, governments should need to offer high real rates of

a wide range of asset prices, to be forward - looking in its aim of maintaining low and stable inflation, and to be ready to respond to changes in the signposts. the remarkable degree of stability that the uk economy has enjoyed over the past decade has been less evident over the past twelve months. growth slowed and inflation rose above target. but after a period driving along a smooth new highway, a change to a more challenging road surface does not, as i said recently to the house of lords economic affairs committee, mean that the wheels are coming off the economy ; rather, it tells us that there are somewhat more and somewhat larger bumps on the road. monetary policy can try to avoid some of the worst bumps, but it cannot ensure a flat road surface. nevertheless, growth has picked up and inflation has fallen back close to its 2 % target. our central view remains one of steady growth and low inflation. but there are risks to that central view emanating from the rest of the world and we shall watch developments in world capital markets carefully. by keeping inflation close to the target, and so doing what it can to maintain economic stability, the monetary policy committee aims to allow you and other businesses to follow the signposts which guide a market economy. i cannot finish without reminding you that tomorrow is the 300th anniversary of the birth of benjamin franklin, arguably the greatest of the american founding fathers. during his lengthy stays in england, benjamin franklin visited kent many times. to celebrate his tercentenary the american brewing association has produced a new recipe for franklin ’ s favourite beer. the hops recommended for the recipe are kent goldings. despite the fears of the demonstrators on hop saturday in 1908, the kent hop industry has not disappeared altogether. the area under planting is certainly much smaller, but research in centres such as wye college has produced the new hedgerow hops which are recognised worldwide. employment in kent, though, has moved into new and more productive sectors. adapting to changes in the external environment is not easy for any of us - whether running a business or setting monetary policy - but if we do adjust the benefits will accrue, if not to everyone immediately then to the great majority over the years to come.