two consecutive quarters of negative gdp growth. previous recessions include those beginning in 1973, 1975, 1980 and 1990. a recovery ends if a second recession occurs in the period shown. chart 9b : … and international experience percentage changes on a year earlier ( % ) g7 excluding the uk uk - 5 - 10 - 15 range across the g7 excluding the uk - 20 - 25 sources : eikon from refinitiv, japanese cabinet office, oecd, ons, oxford economics, statistics canada, us bureau of economic analysis and bank calculations. notes : chained ‑ volume measure. business investment is not an internationally recognised concept. this swathe includes similar series derived from other countries ’ national accounts. private sector business investment for italy. business investment minus residential structures for canada. non ‑ residential private investment for japan and the us. non ‑ government investment minus dwellings investment for france and germany. all speeches are available online at www. bankofengland. co. uk / news / speeches there are three ways to measure the scale of the uk investment underperformance. - first, by using evidence from the bank ’ s decision maker panel survey of companies. 8 since the referendum, brexit has ranked as one of the three most important sources of uncertainty for over one third of respondents to this survey – and for one half since autumn last year. 9 investment growth has been persistently weaker among these companies ( chart 10 ), reducing total business investment by an estimated 6 to 14 %. - second, by comparing the performance of business investment in the uk with the rest of the g7. prior to brexit, uk business investment was growing in line with the average across the rest of the g7. since then, it has risen by just 1 % in the uk, while it is up by 12 % on average elsewhere, and by 16 % in the us. - and third, by comparing to pre - crisis trends. the current level of business investment is some 20 % below the mpc ’ s projection from may 2016, conditioned on a vote to remain. these three approaches average to a 12 % hit to uk business investment caused by brexit uncertainty. to compare that to what markets may be pricing in for global trade effects, consider that expected policy rates in the us have fallen by around 150 basis points since the first trade measures took effect in july last year. that is enough to offset a reduction in gdp of some 1. 5 % 10 –

adapt – that is, learn from the past without assuming that the future will follow the past. kahneman and tversky ( 1973 ) famously shows how humans are neither rational nor mechanical in making predictions, rather applying ( oft - mistaken ) judgment. williams ( 1987 ) reports various experiments testing how market participants form price forecasts, rejecting both rational expectations and extrapolative expectations models. see for example lovell university of chicago sovereign defaults are a fascinating example throughout history of the complexity of expectation formation – on the one hand, there are many examples of investors having long memories. louis xi faced a very high cost of borrowing because of repeated defaults and similar pressure encouraged william iii to the creation of the bank of england. on the other hand, there are many instances of investors lending repeatedly to sovereigns that have defaulted repeatedly. all speeches are available online at www. bankofengland. co. uk / speeches pedro bordalo, nicola gennaioli and andrei shleifer have recently posited a model of expectations that acknowledges our tendency to extrapolate from the past, but also allows for the use of forward - looking information. 19 it endeavours to integrate insights from behavioural economics into a rigorous economic model. they have embedded the work of behavioural psychologists that shows that while we do use news to form expectations of the future, we have a tendency to over - weight certain types of news. and that the way we remember can lead to certain risks being neglected or undervalued when we project the future. they use this model to explain the development of expectations in the run - up to the great financial crisis 10 years ago, expectations which they demonstrate were clearly not rational in the light of available information. the economic model they have developed – of ‘ diagnostic ’ expectations – is appealing because it starts from research on how humans form beliefs about the future, and how they act on those. the way in which investors and markets form expectations of the future is clearly an area that merits further research. as i will go on to discuss, it is important to those of us responsible for financial stability to understand what is driving the expectations of the future that underlie risk - taking and what drivers kick in when those expectations meet the future and have to be adjusted. macroprudential policy as i said at the outset, i expect the next ‘ crisis ’ to involve some form of over - valuation of assets, over - extension of credit and losses when this corrects.