The apparent strength in U.S. productivity growth, our greater overall flexibility as an economy and the resilience of our financial system puts us in a stronger position to deal with the challenges in the transition ahead. But we face a number of difficult long-term challenges as a nation—in our fiscal position, in how well we equip our citizens to prosper in a more competitive world and in our ability to sustain political support for the policies, including our relatively open trade policy, that have been an important source of the improvement in U.S. prosperity. Our external imbalances make it more important that we invest in meeting those challenges. Thank you. 3/3
More importantly for the real economy, sterling investment-grade corporate bond spreads have fallen over three and a half percentage points since the start of Quantitative Easing (Chart 4). And equity prices have risen by almost a half, the fifth largest increase in a six-month period over the past three hundred years (Chart 5). Accompanying this, UK companies have issued over £ billion worth of bonds and equities since January, compared with an annual average of around £ billion in recent years (Chart 6). Moreover, the spread between the three-month interbank rate over expected Bank Rate, which had been unusually elevated during the crisis, particularly after the collapse of Lehman Brothers, has fallen by almost 1½ percentage points and is now more or less back to pre-crisis levels (Chart 7). All this suggests that Quantitative Easing is having the expected effects on the economy. However, there may also be other reasons why asset prices have recovered in recent months. Early in the year, there were considerable fears that the recession would continue to deepen, whereas it now seems that activity here and elsewhere has probably troughed, so some of the worst downside risks look unlikely to crystallise. And asset prices have been rising not only here, but elsewhere, though that could reflect the aggressive monetary policy measures adopted by other central banks too.