They all use an index of uncertainty developed by Bank economists, based on a range of variables, including 5  media references, options prices and the dispersion of economic forecasts . 5  The composition of this index is standard in the literature. But it’s always good to know more. To that end, and in collaboration with H M Treasury and a group of academic economists, the Bank is setting up new Decision Maker Panel of senior executives from a wide range of British companies. Each month the panel members will provide information on how business conditions are changing and, in particular, about the weight they attach to different possible outcomes for investment, sales, employment, costs, prices and margins. In this way we hope to monitor in a timely manner changes in the uncertainty business is facing and how they are reacting to it.
If you collapse the range of alternatives to the worst possible outcome – now you know for sure that a project isn’t worth pursuing – that would obviously hit investment, 7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  despite the drop in uncertainty. If it keeps open the possibility of better outcomes a lack of clarity may sometimes be worth putting up with. Monetary policy and DB pension schemes  Let me turn now to my second topic, the interaction between low bond yields, QE and the financial position of defined benefit (DB) pension schemes. These funds do exactly what they say on the tin: they promise their beneficiaries a fixed future payout, not unlike the coupon on a government bond. That’s why they’re obliged to discount these liabilities by the longer-term bond yield. That, in turn, means the present-value cost of those liabilities goes up when the bond yield falls. And because easier monetary policy tends in the first instance to do precisely that – to depress yields – central banks have been criticised in recent years for worsening the financial position of such funds. Since its decision to ease monetary policy in August, both by lowering Bank Rate and expanding its asset purchases, the MPC has again encountered this concern. Just as this point isn’t new, nor is what I’ll say in response.