It also reflects the policy response to the shock – the MPC cut Bank Rate to 0.25%, launched a Term Funding Scheme to reinforce the pass-through of that cut, and embarked on a new round of asset purchases; and the FPC cut the CCyB. Fiscal policy has also been more supportive, and the world economy grew more strongly than we had expected. But part of that performance also appears to reflect the underlying resilience of the UK labour market. The growing flexibility of the labour market has been a theme in UK economic policy developments for some time. The share of long term unemployed has fallen steadily from its 1980s peak of 4½% to reach 1% now; even in the financial crisis, when unemployment stayed around 8% for several years, long term unemployment remained below 3%. This resilience is good news, and has been positive for households and businesses. But as policymakers it is important that we look at the underpinnings of this resilience. GDP growth since the Brexit referendum has mainly been supported by continued consumption growth, even despite the hit to real household income caused by the fall in sterling around the referendum. Consumption has instead been funded, perhaps less sustainably, by a historically low household saving ratio.
My second lesson from the crisis was that we need to think about resilience much more broadly. Reflecting that, economic policy makers now think as much about stability over the financial cycle as we do over the business cycle – a broader definition of resilience. One major response to the financial crisis was the creation of a new Financial Policy Committee as part of the Bank of England, giving it an explicit mandate to identify, monitor and take action to remove risks to the financial system. The Committee’s goal is to ensure the financial system is resilient to shocks, so that it doesn’t again act as an amplifier, worsening the impact on households and businesses in the real economy, as it did in the crisis. My MPC colleague SIlvana Tenreyro sets out these arguments in detail in her spech “The fall in productivity growth: causes and implications”, available online at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-fall-in-productivity-growth-causesand-implications.pdf. 4  6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  The FPC has been active in pursuing this goal. We have a mandate to ensure the safety and soundness of the financial system as a whole. To do that, one of the things that we do is to regularly reassess and actively adjust the amount of loss-absorbing capital that banks, who are at the heart of the financial system, are required to hold as our assessment of the level of risks changes. (Our tool for doing this is called the counter-cyclical capital buffer rate, or CCyB.)