scope to maintain the existing stance of monetary policy longer, perhaps re - setting the unemployment threshold to a new lower level at the same time. in any case, as a breach of the threshold becomes imminent, it seems likely that the committee will wish to provide further guidance on the future determinants of policy in order to reduce any uncertainty surrounding our reaction function. can we say anything yet about the effectiveness of the introduction of forward guidance? as already noted, the primary objective is to give confidence to business and households that policy will not be tightened until there is a material reduction in economic slack ( assuming that neither price nor financial stability are threatened ) and to prevent an excessive snapback in market interest rates taking place simply because a recovery is under way. as far as the broad message to businesses and households goes, contacts of the bank ’ s agents suggest that businesses have got the message that the mpc will only begin to tighten policy once the recovery is entrenched and slack has been materially reduced. and in the period after the mpc ’ s announcement, the markit household finance index suggested that households expected bank rate to rise later than before, although the date has since come back in again, perhaps reflecting the continued flow of positive data. at first sight, the evidence from market interest rates is more equivocal. chart 5 shows the instantaneous forward yield curve in may, august and today. yields have risen substantially since may. on the face of it, that appears to suggest that the guidance has not been very effective at influencing the expectations of market participants. interpreting movements in market rates is, however, complicated by the fact that other factors influencing yields have not been constant. first, the recent run of uk data has been unusually strong relative to market expectations. that should generate upward pressure on market interest rates as, other things equal, a reduction in the degree of monetary stimulus would indeed become appropriate sooner if growth turns out stronger than expected. bank staff have constructed a time series for the news in the incoming data by calculating, for 14 different data series, the deviation of the outcome from the market ’ s expectations ( as recorded by the median expectation of economists polled by bloomberg ), normalised by its standard deviation. an aggregate timeseries measure can then be obtained by taking an ( unweighted ) average across the most recent observations for each series. chart 6 shows such a measure back to 2006, together with analogous series for the united states and the euro area. the series for the

great deal of uncertainty about the outlook for short term interest rates. any changes in perception concerning the timing and intensity of the us interest rate cycle are likely to elicit reactions in global financial markets. thus while the recovery in the us is good news for emerging markets in that this breaks the synchronised downturn in advanced economies and that a growing us economy is critical to global recovery, it does have implications for emerging market financial markets. we are therefore in for a bumpy ride, with the prospect of a series of “ risk on ” and “ risk off ” scenarios as global risk perceptions change in response to unfolding developments. we can expect financial markets, including the rand exchange rate, to remain volatile in response to these changing perceptions. the outlook is complicated by the fact that a synchronised normalisation in the advanced economies is not expected. the bank of england is most likely to move in line with the us, but the eurozone and japan are still in an easing cycle. only last week, the ecb cut interest rates again, and announced a range of new measures to induce banks to increase lending, including measures to expand bank liquidity, and hinted at the possibility of some form of quantitative easing in the future. the ecb also indicated that this accommodative stance was likely to remain in place for a protracted period. the bank of japan is also likely to maintain its highly accommodative monetary and fiscal stance for some time. the bottom line is that normalisation will happen : it will not be a synchronised event, and the timing and speed of the cycle is uncertain and will be dependent on the pace of the recovery in the advanced economies. the more uneven these recoveries, the more volatile capital flows to emerging markets are likely to remain. but the era of abundant flows to emerging markets appears to be over : the volume of flows is likely to be lower and more discriminating than was the case in recent years. and of course this applies more strongly to countries such as south africa, where sustainability of current account deficits are perceived to be an issue. these developments come at a time when emerging markets in general are slowing, and the previous optimism that emerging markets are the new epicentre of global growth may have been a bit misplaced. despite this, emerging markets remain an important driver of global growth, but the outlook is fragile. the chinese economy is expecting to slow to levels of between 7 – 7,