4  A number of recent cross-country studies have documented the substantial and long-lasting effect on output of past recessions caused by banking crises. That is illustrated in Chart 6. The dark blue line shows the mean fall in output relative to a continuation of the pre-crisis trend (calculated omitting the three years preceding the crisis) across 88 previous systemic banking crises in advanced and emerging market economies. The average decline in output, relative to a continuation of the pre-crisis trend, is around 10% and remarkably persistent, suggesting that ultimately aggregate supply follows aggregate demand down, even if it does not fall immediately. The UK experience (red line) has so far been fairly similar to that average past experience, although the most recent quarterly outturns have been somewhat  4  See, for instance, the IMF’s October 2009 World Economic Outlook and Carmen Reinhart and Ken Rogoff, This Time Is Different. 4  BIS Review 142/2010  stronger than one might have expected. Chart 6 also reveals, however, a very marked heterogeneity across episodes, with the blue swathe covering the central 50% of the distribution of outcomes and the grey swathe 90% of the distribution; a substantial permanent loss in output is by no means pre-ordained. There are a variety of ways that a banking crisis might impair an economy’s supply capacity. Reduced availability of credit and lower activity are both likely to depress investment, which has indeed fallen sharply.
In the old days, when the economy was dominated by manufacturing, it might have been relatively easy to measure the volume of output and value added of different industries. But our economy today is dominated by services. Conceptually even defining the value added in, say, the financial sector, let alone measuring it, is not straightforward. Moreover, the meaning of a series often changes subtly over time as the economy evolves. Manufacturing today is a very different animal from manufacturing 30 years ago: for instance, the value added of Rolls-Royce aero engines today comes as much from the after-sales and maintenance as from the engine assembly itself. Finally, and most saliently for real-time policy analysis, the official data invariably appear with a delay of some months and can be substantially revised as more information accrues and the ONS improve their methodology. For that reason, the Monetary Policy Committee supplements the official data with two other sources of information that are more timely, even if they lack precision compared with the official data. The first are the regular business surveys from the likes of the Confederation of British Industry and the British Chambers of Commerce. As many of these have been going for quite a while, we have in many cases been able to establish their usefulness as predictors of the not-yet-available official data. Second, we also rely on the information provided by our network of regional Agents who have about 8000 business contacts across the country.