23  All speeches are available online at www.bankofengland.co.uk/speeches  23  Chart 26: Asset price responsiveness to trade news Per cent  2018 - Positive news 2019 - Positive news 2018 - Negative news 2019 - Negative news  0.2  2018 - Positive news 2019 - Positive news 2018 - Negative news 2019 - Negative news  Per cent, pp for VIX 1.2 1 0.8  0.1  0.6 0  0.4 0.2  -0.1  0 -0.2  -0.2  -0.4 -0.3 -0.4 US Dollar ERI  2018 - Positive news 2019 - Positive news 2018 - Negative news 2019 - Negative news  CNY bps  -0.6 -0.8 S&P 500  Shanghai Composite  VIX  8 6 4 2 0 -2 -4 -6 -8  10-year US Treasury yields  High-Yield US corporate credit spreads Sources: Bloomberg LP and Bank of England calculations. Trade tensions are also taking their toll on companies’ sentiment and activity. Global goods trade has slowed (Chart 27). But the weakening has been even more striking in business surveys of sentiment, manufacturing and export orders. This weakening has been broadly-based across the world’s major trading economies, with simultaneous falls in sentiment across the United States, Asia, Europe and China.
Monetary policy responded with a force never previously seen in history. Today, the most likely shocks or downside risks to the economy are very different in their source and impact. They arise from factors such as global trade wars and Brexit. These shocks are different in their duration – more slow-burn than spontaneous conflagration. And they are radically different in their source, as they hit the supply potential of the economy, as much as its demand side. 31  El-Erian (2016). 32  All speeches are available online at www.bankofengland.co.uk/speeches  32  Consider the effects of Brexit uncertainty on the UK economy. By far the largest effects have been on companies’ investment and productivity. According to our Decision Maker Panel, investment among UK companies is estimated to be between 6-14% lower, and firms’ Total Factor Productivity (TFP) around 2-5% lower.32 These are large negative shocks to the economy’s supply-side potential. They are hits that monetary policy is not itself well-placed to mitigate. There is a risk of people normalising the deviance in monetary policy since the crisis. Around a quarter of adults in the UK working population have never experienced Bank Rate above 1% in their adult lives.33 In these changed circumstances compared with a decade ago, it is important that monetary policy is not a prisoner of its past, that the monetary cavalry are not called at the first whiff of grapeshot, that a dependency culture around monetary policy is not allowed to develop.