But here, too, there are clear signs of an increase in high LTV mortgage products on offer. Towards the end of last year, the FPC announced measures to reduce the stimulus previously provided, for instance from the Bank’s Funding for Lending Scheme, and outlined further instruments it had available to mitigate potential risks to financial stability from the housing market. Given the increasing momentum, the FPC stated its clear intention to be vigilant to emerging vulnerabilities and to take further proportionate and graduated action if warranted. Also, the FCA has undertaken, from next month, as part of the implementation of the Mortgage Market Review to work to maintain stronger underwriting standards – I say “maintain” deliberately because we observe evidence of a welcome strengthening by the industry of such standards. The FPC, for its part, has recommended that it should in future be able to give guidance on appropriate interest rates to be used by banks in their affordability tests. The FCA is putting this new arrangement into effect. In its latest statement, the FPC made clear that it had discussed the appropriate scenario for this year’s bank stress testing exercise. Like all stress tests, this scenario will not represent the FPC’s central expectation of what is likely to happen, but rather act as a coherent representation of risks in the tail of the distribution of possible future outcomes against which the resilience of banks can be tested.
The one thing you can be reasonably sure of as you look ahead to 2020 is that you will be confronted with a continuing challenge to keep ahead of the competition in your existing industries and that you will need to be able to respond to changing demands and embrace new activities to replace those where your present comparative advantage becomes impossible to sustain - as is unfortunately bound to happen in some cases. So my first point is that the market economy is with us to stay, with all that that implies. We've also learned that one of the conditions that are necessary if a market economy is to function effectively is a framework of macro-economic stability. For much of the post-war period macro-economic policy - not just in this country, but including in this country - focussed heavily on the short-term management of aggregate demand in the economy. It paid too little attention to the underlying, supply-side, capacity of the economy to meet that demand. Faced with slow growth and rising unemployment both fiscal and monetary policy were used, in combination, to stimulate demand until accelerating inflation and a worsening balance of payments threatened to run out of hand, when the brakes were slammed on and everything went into reverse. The go-stop policy cycle in other words produced the familiar boom-bust business cycle. Over time this experience induced a pervasive short-termism in economic decision-making on the part of both businesses and consumers.