And such an understanding of what drives the formation of our expectations in this area, might also help us to decide whether, as well as using policy counter-cyclically to build resilience in the system as risks grow and release it as risks crystallise, we should use policy more actively to ‘lean against the wind’ – to discourage and dis-incentivise any build-up of expectations that appear to have formed irrationally. 23  See Carney (2019) for an illustration of some key indicators for a range of major economies over the past four decades. See, for example, Bridges et. al. (2017) which looks at a sample of 130 downturns since the 1970s, across advanced economies While it finds some evidence of a role for the level of indebtedness, credit growth is found to be a more significant predictor, with rapid credit growth predicting worse recessions: longer with lower GDP per capital, higher unemployment, and more lost productivity. 24  9  All speeches are available online at www.bankofengland.co.uk/speeches  9  All of this, perhaps, seems very theoretical compared to your essay question of “What will be the next great financial crisis?” So I will try now to relate some of these issues to our current assessment of financial stability risks facing the UK. UK Conjuncture The most prominent short-term risk facing the UK today of some financial sector correction is the possibility of an extremely disorderly Brexit.
Core inflation, on the other hand, which excludes food and energy, remained stable at 0.9%. For us, the overall inflation rate is the key figure because we protect the purchasing power of citizens, albeit in the “medium term”, not on a month-to-month basis. Given the current high variability of energy prices, indicators of the underlying price dynamics say more about future developments than about the overall inflation rate. We still assume that, because of energy prices, the overall inflation rate will rise until the middle of this year – reaching our “comfort zone”. But one swallow doesn’t make a summer. For in the second half of the year, it is likely to fall again and then reach 1.5% in 2018. So, subdued inflation will be with us for quite some time, but the spectre of deflation has disappeared from the radar of market participants. For this recovery to gain traction, we have to keep our word. The adjustments to our asset purchase programme will be implemented as announced in December – because, first, it contributes significantly to the economic recovery and stabilisation on the price front. And second, monetary policy in times of heightened uncertainty must be a guarantor of stability and 2/5  BIS central bankers' speeches  reliability by being credible. And yet, at the same time, how much longer can we continue to talk about “even lower rates” as being a monetary policy option?