Uncertain times Speech given by Ben Broadbent, Deputy Governor Monetary Policy, Bank of England  At the Wall Street Journal, The News Building, London 5 October 2016  I would like to thank my fellow MPC members and other Bank colleagues for their helpful comments. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Before August, the UK’s official interest rate had been held at ½% for over seven years, the longest period of unchanged rates since 1950. No-one on the current MPC was on the Committee when rates were previously changed, in early 2009; indeed there are children now at primary school who weren’t even alive at the time. So although the August Inflation Report gave a pretty full account of the reasons for the MPC’s decision it wouldn’t do any harm to expand on these things a little further. That’s what I plan to do today, focussing on two areas. The first involves one of the main reasons for the revised – and weaker – economic projections we made in the August Inflation Report and the policy easing that accompanied it. This was not a judgement about the ultimate economic effects of the UK’s exit from the EU, not least because we are unlikely to know, for quite some time, what that will entail.
If you collapse the range of alternatives to the worst possible outcome – now you know for sure that a project isn’t worth pursuing – that would obviously hit investment, 7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  despite the drop in uncertainty. If it keeps open the possibility of better outcomes a lack of clarity may sometimes be worth putting up with. Monetary policy and DB pension schemes  Let me turn now to my second topic, the interaction between low bond yields, QE and the financial position of defined benefit (DB) pension schemes. These funds do exactly what they say on the tin: they promise their beneficiaries a fixed future payout, not unlike the coupon on a government bond. That’s why they’re obliged to discount these liabilities by the longer-term bond yield. That, in turn, means the present-value cost of those liabilities goes up when the bond yield falls. And because easier monetary policy tends in the first instance to do precisely that – to depress yields – central banks have been criticised in recent years for worsening the financial position of such funds. Since its decision to ease monetary policy in August, both by lowering Bank Rate and expanding its asset purchases, the MPC has again encountered this concern. Just as this point isn’t new, nor is what I’ll say in response.