Chart 2 Highly indebted companies cut investment  Chart 3 UK current account balance as a  and employment more than unleveraged  percentage of GDP since 1955  companies in the global financial crisis Investment  Employment  Percentage change in crisis  % of GDP 6  15 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 No leverage  4 2 0 -2 -4 -6  High leverage  -8 1955  Sources: S&P Global Market Intelligence and Bank calculations. 65  75  85  95  05  15  Source: ONS  Notes: Change in investment and employment in the financial crisis for unleveraged companies and companies with high leverage ratios. Percentage change reflects the average log change in investment and employment between 2007 and 2009. High leverage companies are those with net debt/EBITDA ratio higher than four in 2006. See, for example, Olivier Blanchard and Gian Maria Milesi-Ferretti, ‘(Why) Should Current Account Balances Be Reduced?’, IMF Economic Review, April 2012 and Julián A. Caballero, ‘Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?’, Economic Journal, March 2016. 5  5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  Recent developments  What, then, has been happening in the UK to these drivers of underlying economic vulnerability? Developments are summarised in the ‘heat map’ below (Chart 4). The colours represent how high each indicator is relative to past outcomes.
Page 15  Chart 10: MPC asset purchase targets  Balance sheet policies So far, I have focused on the outlook for Bank Rate, consistent with the MPC’s view that this is now the ‘active tool’ for the conduct of monetary policy. But the transition in monetary policy that is underway has broader implications. In particular, it creates scope to start running down the asset portfolios accumulated as a result of quantitative and credit easing policies implemented by the Bank in the past. The impact of these policies over the past decade or so remains controversial. A recent publication by Bank staff surveys the large body of research and analysis conducted on central bank asset purchases. [16] It concludes that, although QE did help the Bank pursue its monetary policy mandate, both the magnitude of its effect and the channels through which it was transmitted are difficult to estimate precisely, and are anyway likely to have varied in both absolute and relative magnitude over time, as the economic context in which they were implemented changed. However one views that evidence, with inflation having risen and Bank Rate moving away from its effective lower bound, the case for employing those monetary policy tools has disappeared, at least for now. The MPC set out its plan for running down the asset portfolios accumulated through QE in its August 2021 Monetary Policy Report. [17] Consistent with that plan, once Bank Rate reached 0.5% in February of this year, reinvestment of maturing gilts in the QE portfolio ceased.