we'll go straight to mervin king. >> and a gradual recovery in output.ertheless, we are navigating rough waters and storm clouds continue to roll in from the euro area. output has contracted in each of the past three quarters, but the underlying picture is probably not as weak as headline data suggests. the extra bank holiday in june is likely to have reduced outputting q2 by around 0.5%, an effect that should unwind in q3. a large fall in construction output in the first half of the year, which seems like survey data, is unlikely to be repeated. even looking through those erratic factors, the underlying is that it's been broadly flat over the past two years and continually disappointed expectations of a recovery. in contrast, the labor market has remained surprisingly resilient in recent months. private sector employment has grown robustly and unemployment has edged down wards. the resilience of employment combined with the weakness of output means that productivity growth has been unusually low. that continues a patent of weak output and productivity g

>> no, normally he would have, and if you note mervin king's statement, they were done on a cooperative with the agencies and this was distinguished because it was not. >> ron, what's your take on this. >> having been at the fcc, there's always at some point in time turf war between the federal regulators and other regulators. he wanted to jump ahead of the federal regulators. >> scott, if i can give you my reporters notebook here, my guess is that the treasury and the manhattan district attorney's office were in the process of figuring out which ones of those transactions were actually violations of law, which ones fell into a gray area, and it seems like lawsky went ahead before that distinction was made. >> i don't think anybody i dden that. >> i heard they took them very seriously. >> right, i think the question is the quantity and the size. >> what do you think will be when you look at similar cases, ing, $600 million, where are you in terms of the settlement right might see. >> i was reading they were expecting $1.5 billion. >> steve, is the treasury upset with the fact that this

ten-year gilt is down 1.56%, but we'll keep an eye as we continue to hear from mervin king. we've seen a reaction in gilts, he's talking about balanced risk maybe in the longer term. inflation, some concern about productivity levels in uk. u.s. products report coming up later today. we'll look at how forex markets are responding. the euro/dollar is down this morning, consistent with the other red arrows we've seen. certainly again strengthening against the yen as well. the aussie/dollar is also retreating. standard chartered shares this morning, rebounding up about 6%, although as you can see, that's not enough to turn around the ftse, which is still down in the range of 0.6%. back over to you. >> kelly, that was interesting what you said. you would describe gabby as -- how would you say it, she's in a good place? i mean, she won the gold. she's america's sweetheart. on the cover of the cornflakes box, the last person was like phelps or something. you said her financial stability. i like the way you said that. kind of stable. you've seen what the estimates are for what she's

mervin king looks like he is singularly responsible for the ouster of bob diamond. they said that the government should not be trying to manage, if you will, who is the ceo and who shot this. there looks like there was an implicit threat the night that bob diamond was forced to resign in part because they were worried that he might offer some damning testimony the next day against paul tucker who works for mervin king. there's a whole sort of back story to this. >> as their regulator what authorities should they have? >> this is always -- this is the million trillion, billion, gazillion dollar question. >> if you hadn't noticed the idea of selling in may and going away that was the exact wrong strategy that you should have employed because while you were away and not paying attention the dow, the s&p, the nasdaq all of these indices have been climbing higher. the s&p is up 12% since early june. the dow has been up for the last six straight weeks in a row. up 9.7% since june. last week you did see some modest gains. s&p was up boy 0.9%. nasdaq was up by 1.85%. if you

mervin king came out and said it would damage other financial institutions. where are we betting there will or won't be -->> two months ago at the boe meeting the current view is a rate cut would be counter productive. last month they didn't mentioned the rate cut. i think what is being flagged look we need to keep it as an option. we need to analyze it because you have this funding for lending scheme priced off the bank rate. if you cut that process. i think it's slightly more relevance. it need to be an option that we need to keep on the table. >> i think you've talked about they shouldn't cut rates because of the damage. the other thing is whether there will need to be compromise on the government's fiscal plan a because clearly with the government finance this week there was slippage. >> yeah. plan a and plan b. nine billion pounds under water and no further deterioration they will have to brother an extra 13 billion more than they expected. to they loosen fiscal policy. that will worsen the public policy or embrace austerity more, tax month, cut spending