worth, and so to its capability to meet any future fund shortfall. ) how much risk a company should take in its core business and in the provision of pensions is obviously a matter for its board. a famous paper in corporate finance 5 finds that, subject to some ( admittedly fairly strong ) assumptions about tax etc, the market value of a company ( measured as the sum of the value of all its financial liabilities, equity and debt ) should not depend on its capital structure. rather, its capital structure affects the risk to equity holders, and so the headline return they should rationally require to compensate for risk. within this framework, defined - benefit pension schemes can be viewed as deferred compensation and so as entailing a form of indebtedness ( in many cases, de facto indexed - linked borrowing ) for their sponsors, to be ‘ serviced ’ alongside their more conventional external indebtedness. perhaps that has become most obvious when a fund is calculated as being in deficit. it would seem that in recent years there has been a keener awareness of this way of thinking analytically about pension obligations. if there has been an ‘ awakening ’, maybe it was triggered by a combination of the volatility of the value of equities held by funds, especially when they fell sharply a few years ago ; the volatility of the discounted value of their liabilities as long - maturity real rates fell ; regulatory requirements governing the closure of deficits ; and fluctuations in the net value of funds having for the first time to be reflected in firms ’ capital in their financial accounts. firms may, therefore, have been reviewing their preferences between risk - taking in their core business and risk - taking via pension provision, and for a while may have been unusually uncertain about how equity markets value those different sources of uncertainty. if so, that may conceivably offer part of the explanation for the measured recovery in uk business investment having been weak, relative to the economy ’ s total output, compared with past cycles ( charts 11 and 12 ). some have suggested that the need to close deficits may have been a factor, via the call on cash flows. the possibility i am airing is that another factor may be the size of a scheme ’ s discounted liabilities and the prospective volatility of the associated fund ’ s net value relative to the sponsor ’ s underlying business and capitalisation. i do not want to push that too far. there have,

spencer dale : inflation, inflation, inflation speech by mr spencer dale, executive director and chief economist of the bank of england, at cardiff business school, cardiff, 22 september 2010. * * * i would like to thank venetia bell, rohan churm and łukasz rachel for their considerable help in preparing these remarks. the views expressed are my own and do not necessarily reflect those of other members of the monetary policy committee. introduction thank you for the invitation to speak this evening. i studied for my undergraduate degree in economics at what was then university college cardiff in the mid 1980s. i had three wonderful years in cardiff and it is a huge pleasure to come back tonight and to see so many familiar faces. although i hope some of those familiar faces will be kinder to my speech tonight than they were with my essays back then. the theme of my talk tonight is inflation. i hope that you won ’ t find that too disappointing. i fear that some of you were looking forward to a talk on more exciting topics like the financial crisis, the new responsibilities that have been granted to the bank, the speculation concerning a double dip. but i make no apology for focussing on inflation. one of the cornerstones of our economy ’ s stable and consistent growth in the 15 years or so prior to the financial crisis was the period of low and stable inflation that was achieved then. and our future prosperity will depend on our maintaining an environment of low and stable inflation. one of the most worrying comments i have heard in recent months came at a lunch of senior businessmen i attended. one of the diners suggested that the uk was returning to its old ways “ of depreciating the exchange rate and inflating its way out of trouble. ” soon after, a city circular asked “ is the mpc turning a blind eye to inflation? ” this is dangerous talk. the evils of inflation are well known. the high and volatile rates of inflation of the 1970s and 80s stunted our economic performance. companies and households were unable to budget and plan efficiently. resources were misallocated. longterm contracts were avoided. the value of hard - earned savings was eroded. this dangerous talk has perhaps been partly fuelled by the behaviour of inflation in recent years. cpi inflation has averaged close to 3 % over the past four years, significantly higher than the 2 % target and for the most part higher than the mpc anticipated. cpi inflation has been above target for 41 out of the