despite some abatement, payrolls continued to decline and the unemployment rate jumped to 5. 8 percent, putting a dent in labor income. moreover, some of the resilience in household spending last quarter was likely due to temporary factors : the zero percent financing available from automakers, the steep discounts at retailers, and warm weather. additionally, corporate profits remain quite soft. economists have always had difficulty identifying turning points, so i will not try to predict this one. however, i do think stimulative policies in conjunction with the normal equilibrating dynamics of the economy are likely to promote a rebound before too long. the contours of the upturn are uncertain. however, the turnaround is likely to be characterized by some of the same features as the recession that preceded it. in particular, it is likely to be uneven across industries, with some sectors booming ahead and others continuing to lag. it also seems likely that inventories will represent an important component in the bounceback. as inventory stocks approach desired levels, the mere slowing in the pace of liquidation will provide a boost to gdp growth. and when firms are confident that demand is going to pick up, the accompanying inventory re - stocking needed to meet that demand will lead to further production gains, which will provide a real jump - start to the recovery. an important question is when businesses will determine that they have pared their capital expenditures sufficiently. while the recent data hint that one important investment category, computer equipment, may have bottomed out, an overall recovery will likely be associated with a broader - based rebound. the longer - run outlook one of the main forces that will lead to the recovery from this temporary slowdown is the confidence of businesses and households that, in the long run, the outlook for the u. s. economy is still bright. despite our current problems, the fundamentals of this economy are strong. our workforce is well educated and adaptable. in addition, our banking system is healthy and our capital markets, which are flexible and multifaceted, are well equipped to handle shocks. perhaps the most notable feature of our economy in recent years, however, has been the acceleration we have experienced in productivity. in the second half of the 1990s, output per hour in the nonfarm business sector increased at an annual rate of almost 3 percent per year, well above the pace earlier in the decade. these efficiency gains allowed real gdp to rise 4 percent a year, on average

mervyn king : banking and the bank of england speech by mr mervyn king, governor of the bank of england, to the british bankers association, london, tuesday 10 june 2008. * * * after a decade or more of economic stability, we are now facing a period of rising inflation and falling economic growth. part of the reason for this change of economic weather is that we are passing through the most prolonged period of financial turmoil that most of us can remember. whether, as the imf has argued, it is the worst period of financial stress since the 1930s is too early to judge. after all, the crisis is not yet over. since last august there has been a great deal of soul - searching about what we all might have done differently, both before and after 9 august when the crisis hit. and in circumstances where livelihoods are at risk it was inevitable that the “ blame game ” was played. unfortunately, although such a game helped to fill newspaper columns, it generated more heat than light. so today i want to step back. financial crises have been a regular, and disturbing, feature of our and other developed economies for as long any one can remember. they are as frequent now as in the nineteenth century, when henry thornton and walter bagehot were developing their ideas about how central banks could prevent instability in the banking system. are these repeated crises the inevitable result of human nature at work in financial markets, with greed and fear alternating as sentiment swings from irrational optimism to irrational pessimism? or is it the failure over many years to find the right incentive structure for banking markets? or is it a mixture of both? i don ’ t pretend to be able to offer a complete answer to those questions. but i do want to focus on the relationship between the bank of england and the banks because it helps to explain why crises occur and what we can do about them. let me start by saying that, although i do think the role of the bank needs to be enhanced, it would not be right for the bank to take back banking supervision from the fsa, as some have suggested. we should remember that the period before 1997, when fsa and the “ tripartite arrangements ” were set up, was not seen at the time as a golden age of official oversight of banks. before 1997 the relationship between the treasury and the bank of england in respect of banking supervision was often fraught. remember too that the experience which shaped the design of the 1997 settlement was that