near normal in present circumstances really does demand the wisdom of solomon - or at least the wisdom of greenspan. notwithstanding some more encouraging recent signs, there is still a possibility that continuing imbalance between domestic and external demand will need additional sedation or that it will eventually precipitate a sharp fall in the dollar and us asset prices. but the dollar has come off its recent peak and some of the exuberance may now have gone from equity prices - including some of the froth from the “ new economy ” sector, so the risks of sharp correction may be less than they were. elsewhere, in japan, after a long convalescence, there may now at last be some better prospect of a gradual but self - sustaining recovery in private sector demand. and there has been more substantial evidence in recent months of strengthening domestic demand and output growth across the eurozone. that fully justified the european central bank ’ s gradual shift away from its earlier accommodating monetary policy stance ; it may also have contributed to the beginnings of a recovery of the euro exchange rate towards a more comprehensible level. we are certainly not yet out of the woods - there is a long way to go before anyone can feel confident that we are in fact in sight of a more sustainable balance between the major industrial economies. but i am more hopeful that we are now at least moving in the right direction. and that is encouraging news for the uk. on a macro - economic overview, our own economy remains in pretty good shape. in the year to the first quarter total output grew by just over 3 % while prices rose by 2. 7 % measured by the overall gdp deflator or by 2. 1 % on the chancellor ’ s rpix target measure. that is the fifth time in the past seven fiscal years that output growth has exceeded the rate of inflation. since the recession of the early 1990s both output growth and inflation have averaged around 2¾ %. the number of people in employment - as we saw from yesterday ’ s figures - is at an all time high. the rate of unemployment, on a claimant count basis is as low as it has been for 25 years. and interest rates over the past few years have been more stable and just about as low as anyone can remember. now it ’ s true that there are uncertainties ahead - as there always are - which could make for a bumpier ride. the welcome weakening of sterling - which had risen to quite unreal

scarce ’. in this case, banks would be likely to respond by seeking to borrow reserves in money markets, bidding up the price in the process and thereby causing short - term interest rates to rise relative to bank rate. our incentive as a central bank is to ensure that we have liquidity provision facilities to prevent this from happening and maintain effective control of short - term money market rates. quantifying the pmrr is easier said than done. it cannot be objectively observed, it is likely to evolve over time, and it will be affected by our decisions. it will depend on banks ’ business models and choices over the mix of their liquid assets as well as any future developments in liquidity regulation. it will also be affected by our choices in how we supply reserves. this includes not least the price terms of our facilities, but also the assets we choose to hold to back them, and other non - price terms like tenor and eligible collateral. in making these decisions, we need to align the private interests in terms of the reserve demand of individual banks with the public good of maintaining a sufficient aggregate stock of reserves for financial stability purposes – as i will come back to in a moment. a starting point is simply to ask the banks what they think the reserves level in aggregate should be – as we do in biannual surveys. we do have to recognise the uncertainty around any answer we get, and check against our own assessment of the liquidity risk banks face. but the answers clearly point to a significantly larger balance sheet than we had before the financial crisis, with the latest assessments falling in the range of £345bn - £490bn. the current level of reserves of around £760bn is still comfortably above this range. but the continuing processes of unwinding the stock of qe assets and the tfsme mean that the level of reserves is falling. so when will we get there? that will depend not least on how quickly these unwind processes progress. chart 7 shows scenarios based on contractual tfsme maturities and two alternative assumptions on the future pace of qt. these are strictly illustrative, based on the past mpc ’ s decisions on the pace of qt. but they do suggest that we may reach the pmrr as soon as the second half of next year. while reserves remain in ‘ ample ’ supply, the current ‘ floor ’ system will continue to operate smoothly. but as we approach the minimum level of reserves demanded by banks,