mpc.theyserveforyou.com

mpc:

MINUTES OF THE MONETARY POLICY COMMITTEE MEETING HELD ON3-4 NOVEMBER 1999

1 Before completing their November inflation and output growth projections and turning to their immediate policy decision, the Committee discussed demand and output; the labour market; prices and costs; money, credit and asset prices; and the world economic outlook. Prior to the meeting, the Committee was briefed by Treasury officials on the Chancellor's latest projections for economic activity and the public finances.

Demand and output

2 Output was estimated to have increased by 0.9% between Q2 and Q3, significantly higher than projected in the Committee's August Inflation Report; and growth in the first half of the year had been revised upwards, so that the level of activity was also higher than expected. The quarterly rate of manufacturing output growth had been 1% in Q3. The recovery seemed to be spreading both regionally and, with some exceptions such as agriculture, sectorally. The twelve-month growth rate of final domestic demand in Q2, the latest period for which data were available, had been 4.5%, well above trend. Strong domestic demand had to some extent been offset in the first part of the year by destocking and, over a longer period, by weak net trade, reflecting the rise in sterling's exchange rate and shocks to world economic growth. Aggregate demand had therefore grown more slowly than final domestic demand, and this had contained pressures on the economy's supply capacity. More recently, however, net trade had been stronger than expected, and in Q2 had even made a positive contribution to GDP growth. Against this background, the Committee discussed whether the growth in demand was sustainable, and if not whether it would slow spontaneously, ie without a further policy tightening. 3 Within final domestic demand, consumption growth had been especially buoyant. A number of possible special factors were identified. First, strong growth in real earnings, and so real personal disposable income, might have reflected not just tight labour market conditions, but also inflation outturns that had been lower than expected when pay bargains were struck. Other things being equal, any such effect was unlikely to continue as inflation expectations had come down over the past few years, and were now broadly in line with the 2½% target. However, the Committee had built into its latest central projection for inflation a number of particular downward influences on prices - such as