and inflation. but following the financial crisis, manufacturing productivity growth fell back sharply. this fall in manufacturing productivity is the main cause of the slowdown. the reasons behind it are much debated – and productivity may be harder to measure in the modern economy where businesses invest as much in intangible capital, like software and branding, as in physical capital, like buildings and machinery. measurement problems could be a big part of this. but much also points to structural change. perhaps new ideas have become harder to come by, or perhaps technological innovation and specialisation have faded as globalisation slowed. bank of england whatever the reason, when productivity growth is weak, companies gain less from installing new capital. so weaker productivity growth has meant that firms have sought to borrow less to finance investments at a given interest rate. this reduction in the demand for capital has lowered the equilibrium rate. the second important factor is population ageing. chart 5 : population ageing is expected to continue age distribution in the adult ( 16 + ) uk population ( a ) ( a ) dashed line and hashed bars are calculated using the ons 2020 - based interim national population projections : year ending june 2022 estimated international migration variant. sources : ons and bank calculations. chart 5 shows the age distribution for the united kingdom. the share of the adult population aged 20 - 59 has fallen below 65 % in the past decade, and it is set to decline further in the coming years. this population ageing has been driven by a decline in birth rates relative to the high levels seen in the years that followed the second world war – as well as by the happier news that people now live for longer. as people accumulate savings over their working life to fund their retirement, wealth in the economy increases as the age distribution shifts towards older cohorts ( indicated in this chart by bars in different colours ). so ageing households have sought to lend more at a time when less productive firms have sought to borrow less. the only way to establish an equilibrium between the supply and demand in the market for investable funds – that is, to incentivise firms to invest this bank of england additional wealth into productive capital – has been for the price of those funds, the real interest rate, to fall. the trend equilibrium rate, r *, is like a long - term anchor for monetary policy. as r * has fallen, monetary policy has moved with it. this is an important point. the low level of interest rates over the past

and while the current global financial turbulence is taking its toll on employment in some financial services activities in london as elsewhere, the longer - term trend is for the foreign presence - including that from european partner countries - to continue to increase. the bank of england has been working intensively with the city for the past few years to ensure that it is as thoroughly prepared for the start of the euro next year as the financial centres in any of the participating countries. we will be ready to provide financial services denominated in euro to all those that want them from day one. and we are already taking the initiative with our european partners in creating regional market structures, as you see, for example, in the talks between the london stock exchange and the deutsche borse, which are designed to lay the foundations for an inclusive, pan - european, equity market. you will be able to account, trade and settle in euro - denominated assets in london just as you can now in deutsche mark or french francs or dollars or yen. the financial markets of the city are our wedding present to the euro marriage partners. they are not just a national - but a european - asset. there are, of course, some here on the continent who regard this role of the city as something of a mixed blessing - perhaps even a threat rather than a promise. there is a view that the euro should somehow ‘ belong ’ exclusively to the participating countries and that its introduction should be used as an opportunity to confer competitive advantage on national financial centres within the euro area. if that view were to prevail the main effect would be to inhibit the development of the euro as an international trading and portfolio currency, reducing one of the single currency ’ s major benefits to both investors and borrowers within the euro area itself. in practice in today ’ s world of globally integrated markets and liberalised capital flows there is very little prospect of being able to impose artificial constraints on the international use of the euro. there will inevitably be active euro markets in all the major financial centres, including london. and it is in the interest of financial activity right across europe that there should be. like trade in goods, trade in financial services is a positive sum game, so that london ’ s success is not a threat to other european financial centres. as a major interface between europe and the rest of the world i have little doubt that euro - activity in london will mean more rather than less euro activity in other european financial centres like frankfurt, paris, milan