Although the burden of servicing these debts is currently manageable because of the low level of mortgage interest rates, concerns about future servicing costs as interest rates normalise may lead the high stock of outstanding debt to weigh on these households’ spending. The possibility of unemployment may also encourage saving, though happily unemployment has so far risen by less than many observers, including the Monetary Policy Committee, feared. The relative robustness of employment, given the depth of the decline in output, owes something to the willingness of employees to accept low pay awards in the face of the downturn. Last year over a third of private sector pay settlements were pay freezes, and a recent survey of their business contacts carried out by the Bank’s regional Agents points to a similar outcome this year (Chart 2). Third, the Government allowed the fiscal deficit to rise in response to the downturn. That was helpful in cushioning the fall in demand. But the deficit now looks set to be around 12% of GDP this year, which is unsustainable in the medium term. That creates a difficult balancing act. Cutting spending and/or raising taxes is likely to result in lower domestic demand, though a failure to do so may lead long-term interest rates to rise, also hitting demand. The recent depreciation of sterling appears to owe something to heightened fears about the UK’s fiscal prospects.
In particular, FSTEP will offer scholarships to eligible top graduates from various universities to participate in its one-year fast-track training programme. I wish to congratulate FSTEP for the successful effort in designing a new syllabus and it continuous effort to improve the FSTEP programmes remain contemporary and relevant agreed to by all parties within the financial services industry. More importantly, it is my hope that FSTEP will continue to produce the quality of graduates that will meet the needs of the industry. I hope that all of you will have a fruitful discussion and dialogue. On this note, I declare open the event “FSTEP: Syllabus Enhancement”. 2  BIS Review 100/2010