♪ >> financial markets listen, seldom is listed as more true than today. the powers of the federal reserve are merging. somewhere in the middle, it is the bank of england. presented its final inflation report of 2015. welcome to bloomberg. he said in july that the timing of the rate increase would be

clear at the end of this year. what i said in july and repeated. forecast, the decision about whether or not to begin -- sharper relief. at the turn of the year, there year has not turned. >> it is closing in. >> the progress has been in recent months, there has been progress, but it has been mixed. gross has kicked down to growing on trent. -- in my with our expectations. some of the important cost has been a little softer. the picture is a bit mixed. >> that is interesting.

-- happening at home, what is best the emerging markets. you -- -- you said that the prospects will begin best we can. --weakened. forecast --id this we took down our medium expectations for the market. the u.k. is much more exposed, as you know to europe and united states. if you look at u.k. growth, our forecast is gone down about three quarters of a percentage points over two years.

principally because of emerging markets. you see the chinese economy and .ur best efforts ,> when you said best estimates the prospect of banks inside china, how much do you worry about the bad stuff there is from the chinese banks? >> i think that anytime you have a very sharp increase in credit, credit growth as you had in china. some pointect at there will be -- we have not yet seen that. creditrease in private -- and china has doubled more than two times over the past five years. , just toonomy slows

put a figure on that, chinese nominal growth was about 20% after the immediate aftermath of the crisis. it slowed just about 6%. one would expect there would be .n increase the issue is they have to actually start not performing. it is more perspectives than actual. i would not -- the chinese banks have a strong capital position -- can't take appropriate actions. there is a process of adjustment through the financial sector is one of the reasons why we think wrote is going to slow. i would say as a whole, there is a series of -- notably. there are a few dynamics. we all know the commodity super

cycle has come to an end. on slowingesult growth. africants a variety of economies. the shift in capital flow has been marked. potentially reinforced by advanced economy monetary policy. that also having an impact. the pace of structural reform and productivity has slowed in the last few years. >> disappointing. >> it is disappointing. >> the level has not -- this is not happened ye? ,> i would say as a whole capital flowing in, capital credits are easy. the tougher decisions need to be

taken. i think they need -- these are not a series of 10 euros in credit issues and broader issues. that is why. ,> one last thing about china you people always look forward to balancing the economy of china. it leads towards consumers in a way that exports -- that seems to be happening. it does nothing to necessarily be a good thing. >> i think it is a good thing. directionally, it is positive. we are seeing a bit but -- pickup and services. a breakdownbetween between the store relationships and industrial production and chinese growth. that is a positive thing. we are seeing more production. ,he latest wave -- last month the deposit ceiling is positive. ase of the flexibility positive part of the process. that will bring this

rebalancing. we will bring in more sustainable rate of growth in china. it is the second biggest economy in the world. have to deal with the bumping this that comes with it. >> the largest economy in the world. the chinese president said yesterday there was a possibility the federal reserve will raise rates. what are your personal guest about when they will raise the rates? theur expectations are that fed will do what is necessary to achieve it. [laughter] >> you must have some basics in rl about when you expect the fed -- basics in rl about when you expect the fed to raise rates. it, theyy we look at will receive a pass of interest -- consistent of keeping price

stability and the economy growing around full employment. the u.s. economy is performing quite well. this is not the u.s. economy of pre-crisis years. it is performing reasonably well. marks: it is one of the reasons why we see our economy continue to progress. i think i made a point in the -- a conference, i think better decision that they have not yet taken. it feels very familiar to me. i was trying to make earlier, it is familiar to all central bankers. [laughter] >> when we are all reliable as we can be.

when i say i am confident that they would take the decision that is necessary, it is because i have a reasonable understanding of their so-called reaction. how they will adjust monetary policy. timing -- we your don't need to worry about what is happening in america. , it does raises rates, it should make a difference. mark: what matters most to our timing, the u.s. monetary policy adjusts. that economy is continuing to grow above trend. there is inflation in that economy and it is appropriate to do so. i frequently remind people of at thisl one can look past history since we became -- two of the five times the bank moved before the fed. the other times the fed has moved before the bank. this recovery in the u.k.

started after the recovery in the u.s.. we are catching up. we are now at a point where we are more or less at level -- in terms of the queue modes of growth. we may have a little more flexibility than the u.s. because more people have stayed in the job market in the u.k.. we will make a decision. we are informed by what is happening in the u.s.. we will take our decisions based on what is right for achieving our target. >> you said something about how you see inflation around the west. people are struggling with the same thing. inflation is very low. is that something about the modern economy suppressing inflation? do we need to start thinking the way in which those rules are done? >> i think what has happened is that we had to severe shocks. one, global demand, multifaceted. the other has been in part of the financial crisis.

also because it has brought up factors and the graco -- demographics. equilibrium interest rates that are consistent with achieving inflation target and having the economy grow at full employment. it has progressively fallen over the years and then aggressively fell in the aftermath of the crisis. the ability of central banks to stimulate the economy has been challenging. arguably, they have been catching up to provide that degree of stimulus. i argue that both the u.s. and the u.k., what has happened in the last several years has been because of the repair of the financial system, because of paydown of households of debt because of the repairs on the fiscal side. those equilibrium interest rates have been gradually increasing and we are getting more traction with monetary policy. that is the good news. if you are relatively small, let's call it a medium-sized open economy like the u.k., you face a bit more of a head wind

from about -- a broad. relative terms, we import more global disinflation. it matters a bit more for our ability to hit our inflation target than it does in the u.s.. -- robustghing private sector in the u.k. with foreign weakness. >> does correlation matter? >> i think it is important that we look at it in particular because of this disinflation. it shows up to current disinflation. import prices adjust relatively quickly when the exchange rate goes up. or prices go down. then, it takes a wild to -- we have to be conscious. persistent in

that. one of the things we said today, bringing together inflation, we have adjusted a bit our horizon over which we would return inflation to the target. --are recognizing a bit more of the system. we might not be able to get inflation back to target as quickly as we previously would have thought if it was just a one-time drop. for example, the oil price. there are more factors and more persistent. that means we can take a little bit longer to get back to target. that means, monetary policy would be a little tighter than it otherwise would be in the first scenario. >> is that where the pressure comes? >> that is where the pressure comes. we want to avoid cost pressures that build up too much to the extent that once these form factors ultimately passed through the economy, we are overshooting the inflation target. we need to balance those a bit

better than some other economies. during a meaningful job in terms of restricting things. how do you see your job balancing that with the monetary policy? >> the way i put it, the job of the central bank of england, we take fiscal policy. is, fiscal policy move slowly. we all know what it is. it will have certain impacts on the economy. then, we try to achieve our target. extremely in circumstances that a central bank should ever weigh in on fiscal policy. and is only one the fed fiscal policy actually threatens the ability of the central bank to achieve its objective.

>> one other thing that worries outside investors a lot. -- a limitt of a about what you can say about that. i wonder when you look at this, what is the thing that worries you the most about that? what do you think that heard the financial side of britain and would you stop it? >> this is where we take the arrangement as given. the u.k. is a member of the european union. we have to do contingency finding for extreme risks. we are on public record saying we will and are doing contingency planning. we never disclose our contingency plan in advance. we always disclose our contingency plan once the issue has passed. >> the contingency plan, which of it would worry you? that i think is a realistic

question, those who want to stay and those who want to get out. what should those try to cover? >> the issues around our relationship with european union ,hese details and some details not just any speech but associate of reports of that. pointk there is a general of a macroeconomic perspective. the u.k. runs a very large deficit that is natural, given this economy is growing rapidly. that deficit needs to be financed. very financed with mary -- large. it is important that this economy continues to be an attractive destination for foreign capital. our contribution to that is monetary and financial stability. we will continue to deliver that. all of your listeners can

continue to invest -- viewers. they can invest in confidence. >> you said in july, you worried the u.k. would not be able to resolve. is that still the case? leaving -- is that good news? >> that may not be an exact quote. -- we are diligently working on ensuring that we have all of the tools both in the u.k. and globally to resolve major. it is imperative for social institutions and financial stability. we will announce next week an -- a global agreement which we secured csfb. this is the defining moment

ending too big to fail for individual institutions. having the capital structure to create, you have to go through several years or banks reorganize their capital structure and business models be consistent with that. when you get to the end of that process, in the next new year's, you are in a position where you can resolve one of these institutions. with respect to your specific question, which is important. we are very conscious of the banking world. we have banking sectors almost five times gdp. we have a financial sector that is on the road to being 10 or 15 times the gdp as a whole. we need to have that organized in a way that is resilient and the individual institutions, whether they are banks, insurance companies, hedge funds, etc. can fail in a orderly fashion. that are bigger

than our own gdp. we are putting in place all of the tools necessary in order for that to be the case. if i could just buy something , we are next week having a public event. it is relevant to this because -- aspect of this is that recognition of the progress that has been made for institutions and markets so that this economy cancountry, society confidently sustain financial sector this time, if he chooses. credibility, i wonder how much it actually came down to issues of liquidity. you talked about it making capitalism work for people. liquidity seems to be a big part

of it. people are angry about banks. banks seem to be providing less liquidity. is that good news or bad news? >> it is good news depending on how it is organized. we have seen these events over of course of the spring 2014. i have now seen so many events, i cannot keep track. we had this jump to the quiddity liquidity. we need to get to why this is happening. if you step back and look at what has happened with the world's largest financial institution. the dog that has not parked on these episodes is not the on any of these institutions. in a few days, these institutions have come back into the market. spikes indampened the

volatility markets as opposed to amplifying, which is what they did during the crisis. some of these reforms are having their intended impact. that is one of the issues we want to talk about next week. which is a more, if i may put it this way, a more bloomberg type issue. cares aboutbased how these markets are being effective. the question we are putting on the table for all to discuss, which of the reforms have worked? what is contradictory, is a coherent to the home, what are we missing, etc. there is a broader set of questions in the u.k. and beyond. how well our markets serving the real economy. a lot of this -- that you referenced, that actually ultimately will serve the economy better. we will have a more diversified system. there is a third set of

questions, which i alluded to, i would use the term, social license. it is one thing for me to sit here and say we have all of the technicalities worked out in these institutions. you can reliably have these institutions and markets in the u.k.. it is another question to say whether or not people want a financial sector this size. whether they act in -- recognize the economic benefits. also, whether they view those markets as being fairly organized and accountable. >> how much progress you think you made on that? a huge amount of anger at the banks. you are relatively popular. attempt on youan to try to expand this to the british public. it is not think it has gotten through. >> i think it is understandable the residual skepticism people have. how much progress has been made, a lot has progress has been made. progress on paper has

been made in terms of making -- now it has to be implemented. the key issue is around conduct. i think what angers people with what is being tackled now, individual responsibility has not been there. we have seen big fines against institutions, relatively few institutions -- >> some have gone to jail. >> it is broader than that. culture anderall with a broadavior set of people in the industry. we have made sweeping changes. i would underscore, in conjunction with banks and market participants who are in the process of rewriting the codes of conduct in this industry. we are connecting as regulators, the fda and us as the financial regulator, are correcting those cold and behaviors to individual responsibility and accountability.

it is not just the responsibility of that be trader. >> that is going to make the biggest change in my view. >> enforcement around those regulations. >> going back on this unreliable boyfriend. you have tried to communicate to people about possible interest rates rising. all of these things, and yet we are still here flirting with the idea of interest rates. do you think there was no alternative thinking back. did you have any regrets? mark: no. it was very much about the early stages of recovery. whether or not the minimum conditions regard.

if you look at the historic reaction. -- historically, the bank being able to raise rates. , it would not of been the right thing. i , it was partly binding be --ends. i think it actually did give people the confidence. subsequent to that. , we have getting guidance about the past interest rates. it is -- we have repeated so many times it is boring. two years ago. now, it is accepted.

any judgment of the committee, it has not made a progress to start that process. at some point, that will be there. the majorityr have of the british people thinking that rates are likely to go up in the next year. do i also want them and businesses to think that when rates go up, it is not going to be the old rate cycle.

it is not today, unfortunately. >>, finish with two questions somewhat linked. do you have any ambition to see that through? to stay beyond five years? also do have any reaction to events in canada? >> the two unrelated questions. on the second congratulates new prime minister and his cabinet. and i look forward to working with the finance minister. and then the fsb world we have a tangential rule in a coming cup 21 discussions in paris. if i may bring back to bloomberg it will potentially set up a very market-based role on climate change.

i'm not even halfway in its front to really answer that. ♪ narrator: the contemporary art world is vibrant and booming as ♪

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