This is a slightly better outcome than in our July forecast, where we assumed that GDP would fall by 0.3 per cent in the second quarter and that the fall would not come to a halt until the third quarter. However, there was unusually great uncertainty regarding the preliminary national accounts figures on this occasion. In recent months various confidence indicators have also shown an improvement. The National Institute of Economic Research’s Economic Tendency Survey, which summarises companies’ and households’ views of the economic situation, increased by almost seven units in July, to 87.1. However, the level is still below 100 and indicates that the mood among companies and households is still much weaker than normal (see Figure 13). 6 The purchasing managers’ index for July was also more positive than market expectations had implied. It rose by almost four units to 54.3 and was thus above 50 for the second month in a row (see Figure 14). The purchasing managers’ index is usually a slightly quicker indicator of developments than the economic tendency survey and an index above 50 indicates growth. 7 Labour market continues to weaken Our assessment in the most recent Monetary Policy Report was that the labour market would continue to be weak. A deterioration in the labour market usually lags behind in an economic downturn, which was also the case this time.
On the US side of the Atlantic, some of you will recognise echoes here of the Paulson Plan for the creation of a financial stability authority in the Federal Reserve. Furthermore, FPC will have a responsibility to advise the government on when the perimeter of the PRA’s microprudential supervision should change. Very obviously, this is aimed at countering the risk of regulatory arbitrage undermining attempts to tighten up banking regulation. It also recognises that the shape of the financial system is bound to evolve in unexpected ways over the years. The regulatory regime needs to be adaptable. It is not all about banks: instruments addressed to network issues That underlines that the UK’s new macroprudential regime is not all about banks. For example, were it to be warranted, the FPC could potentially intervene via Recommendations or Directions to the microregulators on disclosures made around the issuance and structuring of securities; on the trading infrastructure of markets, to increase the likelihood that liquidity would prove resilient under stress; on limits on large exposures amongst different kinds of firm; and on the rules of the game for the many varieties of shadow banking. On the last, for example, it is no secret that, speaking only for myself, I should like to see the rules for money market mutual funds altered to address the “break the buck” problem.