Moreover, commentators have noted that exporters have responded to the depreciation by expanding their profit margins rather than cutting their foreign currency prices in order to boost market share. Does this mean that the depreciation will prove ineffective at boosting demand? I do not think that would be the right conclusion. Experience after previous large depreciations, such as following sterling’s exit from the Exchange Rate Mechanism in 1992, suggests that it is normal for the initial impact to be seen mainly in expanded profit margins and only after some while does one see an impact on market shares. One reason for that may be that expansion in overseas markets requires some investment and businesses are likely to be cautious about making that expenditure until they are sure the improvement in profitability will be maintained. For that reason, I expect to see the contribution from net exports gradually building as the global recovery proceeds. The path of the recovery will be determined by the balance between these two sets of forces. Our central expectation, as laid out in our February Inflation Report, is for four-quarter GDP growth to gradually strengthen as the year proceeds (Chart 6). But the quarterly path is sure to be uneven and there remains a risk of setbacks. And even if things turn out well, it is likely to be a considerable time before the substantial margin of underutilised resources in the economy developed in the downturn is whittled away (Chart 7).
The scope of our consultation is potentially huge. So I want to say a few words about how we will give focus to our work, and to give a sense of the questions we are asking in our consultation document. The framework we will be using is shown in Figure 3. It divides up areas where the fairness and effectiveness of FICC markets may be deficient into six categories. Three of these relate to the structure of those markets: so-called market microstructure; competition and market discipline; and benchmarks. And three relate to conduct: standards of market practice; firmlevel responsibilities, governance and incentives; and surveillance and penalties. Let me say a little more about each in turn. 1. Microstructure  The first category relates to the microstructure of FICC markets – covering such things as the arrangements for trading, price transparency, market access and the range of asset types. As I noted earlier, many of the products in these markets are tailored to the specific needs of individual borrowers or investors. Although that may be good news for them, it does  BIS central bankers’ speeches  5  mean that quite a number of FICC markets are relatively thin and lack widespread transparency and are hence intrinsically more vulnerable to manipulation. So there may be a tradeoff between the benefits of customisation, and the costs in terms of weaker liquidity and potentially greater vulnerability to abuse. Regulatory and technological change is already leading to greater standardisation and transparency across many FICC markets.