’ perceptions of structural, supply - side differences, and their implications for relative future corporate earnings growth, than by relative macroeconomic policies. no doubt at some point such perceptions will change - or the anticipated differences in future earnings growth be discounted by the change in asset prices, including the effect of exchange rates. there are some tentative signs that this may be beginning to happen. but in the meantime it is not at all clear that there is much that we could do - even if we wanted to - to weaken sterling against the euro by marginal changes in short - term interest rates. as it is our interest rate differential over the euro zone has halved since the euro started, while our exchange rate against the euro has appreciated by around 15 %. we do already, of course, take full account of the exchange rate - and other prices - in both our forecasts and our policy decisions. indeed, it was partly to avoid pushing sterling higher and so aggravating the imbalance within the economy, when we were not wholly convinced that we needed to take that risk in order to achieve the inflation target, that the committee refrained from further monetary tightening over the past eight months. but looking ahead the risks and uncertainties are such that it would be unrealistic to suppose that we can altogether exclude the need for further tightening at some point. leaving on one side possible, though not necessarily likely, international developments outside our control - a hard landing in the us, for example, or a precipitate realignment of exchange rates, or a further spike in the oil price - there are two major uncertainties. the first is the familiar uncertainty relating to the path of overall demand growth. on almost any basis, we start from a position in which the economy as a whole is operating close to capacity. that is reflected in the evident tightness of the labour market, including increasing evidence of skills shortages. if we are to avoid a potentially sharp reversal in earnings growth and accelerating inflation, we need to see a slowdown in the rate of domestic private sector demand growth to accommodate not only the stabilisation of our external current account balance but also the public sector expenditure growth which the chancellor has already announced, not to mention whatever he may be planning to announce tomorrow. there are signs that this slowdown in private sector demand growth may be beginning to happen, but that is certainly not yet assured - and over - generous tax cuts would not help. i must tell you that i am surprised by the

out today with respect to ldi funds ’ leverage. further frameworks may need to be built up. such frameworks would allow market participants to be better prepared for shocks while allowing regulators and financial stability authorities to be more transparent about our expectations. whether these frameworks address vulnerabilities from leverage, liquidity mismatch, or liquidity demands from margin calls, they can draw on the building blocks we have used to calibrate ldi resilience. non - bank frameworks should capture both systemic and idiosyncratic risks. they should account for risks specific to individual participants. in calibration they should draw on the tails of distributions, which include system wide stresses, to calibrate resilience. the timeframes the calibrations are drawn from should consider the options and incentives for raising additional liquidity that are in place, and operational processes should be improved to ensure this additional liquidity can be supplied. non - banks should not have any impediments to drawing down on their liquidity during stress. given a suitable framework for addressing non - bank vulnerabilities, the question for financial stability authorities, regulators, and participants, is where should these frameworks be applied? phrased another way, what activities and which markets are systemic? some non - bank regulatory frameworks are already being built. uk authorities issued a discussion paper on money market funds ( mmfs ) last year. [ 23 ] and ahead of a consultation paper to be released later this year, the fpc judged that mmfs should be able to withstand severe but plausible levels of investor outflows without amplifying stress and increasing risks to financial stability by holding more liquid assets. it is for staff at the uk authorities to calibrate a range of holdings of liquid assets maturing within a week that would address financial stability risks from mmfs. however, it is easy to see how the illustrative scenario i talked you through earlier could be used to calibrate the appropriate resilience of mmfs. mmfs could have a range of holdings to reflect idiosyncratic and systemic risks. these holdings could be calibrated according to observed historical outflows, as seen in the dash for cash and ldi stress events. and as discussed in the discussion paper, the usability of these holdings will also be a key consideration for the uk authorities. conclusion the fpc have recommended a framework for the steady - state resilience of ld