markets. prolonged low investment will restrain growth in the capital stock and increases in productivity. indeed, if the mpc ’ s current forecast comes to pass, the level of investment in 2020 is expected to be 20 % below the level which the mpc had projected just before the referendum. net migration has also fallen by 25 % since the referendum. as a result of these factors and the general weakness in uk productivity growth since the global financial crisis, the supply capacity of the uk economy is likely to expand at only modest rates in coming years. the latest indicators are consistent with uk demand growing a little in excess of the diminished rate of potential supply growth, and the continued erosion of what is now a fairly limited degree of spare capacity. if anything, recent developments suggest that the remaining spare capacity in the economy is being absorbed a little more rapidly than had been expected, and that inflation remains likely to overshoot the 2 % target over the next three years. the mpc ’ s reaction function is clear. the continued erosion of slack lessens the trade - off that the mpc is required to balance and, all else equal, reduces the mpc ’ s tolerance of above - target inflation. as the committee stated last week, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade - off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target. the case for a modest monetary tightening is reinforced by the possibility that global r * may be rising, meaning that monetary policy has to move in order to stand still. any prospective increases in bank rate would be expected to be at a gradual pace and to a limited extent, and to be consistent with monetary policy continuing to provide substantial support to the economy. there remain considerable risks to the uk outlook, which include the response of households, businesses and financial markets to developments related to the process of eu withdrawal. the mpc will respond to these developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation. all speeches are available online at www. bankofengland. co. uk / speeches conclusion before the great wave of globalisation, a series of major institutional reforms increased the transparency and accountability of central banks. the enhanced monetary policy credibility that this brought resulted in a marked drop in inflation

they could sustain their own repo financing. meanwhile, firms such as aig and funds of various kinds had bought abs and cdos financed by short - term repo, so that they held portfolios of household and corporate loans financed at very short maturities – just like a bank, so the argument goes. when the crunch came and abs asset values fell, some of these firms and funds could not rollover their funding. in the case of some dealers and aig, end of story. indeed, towards their end, some could not even repo - out us treasuries to raise cash! the chain of financing was too long and too fragile to prove resilient under stress. the securities lending and repo committee is a uk - based committee of international repo and securities lending practitioners and representatives of trade organisations, together with bodies such as euroclear uk and ireland, the uk debt management office, the london stock exchange and the fsa. it is chaired and administered by the bank of england. the terms of reference can be found at : www. bankofengland. co. uk / markets / gilts / slrcterms. pdf. for example, see gorton g b ( 2009 ), “ slapped in the face by the invisible hand : banking and the panic of 2007 ”, paper prepared for the 2009 federal reserve bank of atlanta jekyll island conference. what are the lessons? part of the problem was that when the music stopped, just as the market was uncertain which banks were sound, investors and savers could not tell a sound abs from an unsound abs. so one lesson must surely be that securities regulators and exchanges, which admit abs to listing, should set more exacting but also simpler standards for transparency. they surely have a clear role to play in the regime for the issue and distribution of such securities. iosco has been working on this. 11 a second lesson is that we have to be clearer about the nature and extent of risks retained by originators. the basel committee is focused on this. other ideas are more radical. it has been suggested that, when combined with repo, the abs market amounts to a major shadow banking system – portfolios of loans financed short term, so with maturity mismatch risk. it follows from this, it is suggested, that the kind of social contract that applies to the mainstream banking system should be extended, suitably adapted, to the abs market. on that view