house prices. when the recovery does come, as it surely will, the margin of spare capacity in the economy will begin to shrink and inflationary pressures will start to build again. so at some stage, we will have to begin withdrawing the large monetary stimulus. although this may be some way in the future, some market participants and commentators are already starting to worry about whether we will be willing and able to accomplish this sufficiently rapidly to prevent inflation taking off, particularly given the scale of the government ’ s prospective financing needs. three points are worth making. first, the timing of the withdrawal of the monetary stimulus will be governed by the need to meet the mpc ’ s inflation objective, not by the government ’ s financing needs. second, with bank rate at its effective floor, we presently have only the asset purchase programme as a tool to stimulate demand. but when it comes to tightening policy, we have two instruments at our disposal : asset sales ; and raising bank rate. it is not necessary to unwind the asset purchases before raising bank rate. third, if we felt the need to drain the extra reserves from the system rapidly, we could also do it by exchanging the reserves for short - term bank of england bills, allowing us to stagger the sales of the gilts. of course, the execution of our exit strategy will still present us with a tricky judgement call. we do not want to nip a recovery in the bud prematurely. equally we will not want to let the inflation genie out of the bottle. but that is the sort of balancing act that monetary policy makers regularly face, even if the scale of the downturn and the size of the policy stimulus that has to be withdrawn are so much larger now. a previous guest at this feast, winston churchill, declared that he “ would rather see finance less proud and industry more content ”, shortly before he took the fateful decision to return the pound to the gold standard at an overvalued rate. finance has certainly been humbled by the events of the past couple of years and the post - crisis financial world is bound to look very different from the pre - crisis one. but let us also hope that it is a world in which industry is more content. it remains only for me to thank you again for a marvellous meal and to propose a toast. to the manufacturing industries of hallamshire.

charles bean : monetary policy developments speech by mr charles bean, deputy governor ( monetary policy ) of the bank of england, at cutlers ’ feast, cutlers ’ hall, sheffield, 21 may 2009. * * * master cutler, lord lieutenant, high sheriff, lord mayor, my lords, ladies and gentlemen. i am very grateful to you, master cutler, for inviting me here to sheffield to speak at this great annual feast, to meet the leaders of such an important sector of british manufacturing industry, and to enjoy your magnificent hospitality. we are now almost two years into the financial crisis, which broke in august 2007. the preceding decade or so was marked by steady growth and low inflation, not just in the united kingdom but in many other parts of the world. in 2003, the bank ’ s governor, mervyn king, even went so far as to christen it the nice decade – standing for non - inflationary consistently expansionary. he was at pains to point out that one should not expect that unusual stability to be maintained. but although we subsequently fretted about the vulnerabilities building up within the global financial system as a result of the relaxed attitude to risk and the easy availability of credit, we never imagined quite how extreme the unwinding would prove, particularly after the bankruptcy of lehman's last september triggered a near collapse of the financial system and a world - wide plunge in business and consumer confidence. the result has been a sharp and synchronised contraction in economic activity across the globe and an unprecedented collapse in world trade. in the twelve months following the onset of the crisis, it seemed natural to expect those countries where the build - up in debt had been greatest, such as the united states and the united kingdom, and those sectors that seemed most exposed, particularly financial services and construction, to be the hardest hit. but that is not how it turned out. the fall in uk gdp of nearly 3½ % over the final quarter of last year and the first quarter of 2009 represents the largest half - yearly decline since records began in 1955. but that is comparatively mild seen alongside falls of almost 6 % in germany and nearly 8 % in japan, both countries running consistent current account surpluses. moreover, as most of you will be only too aware, the downturn has hit manufacturing especially hard, with output in that sector down over 10 % in the uk, 20 % in germany and 30 % in japan, reflecting the sharp decline in the demand for