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mpc: 6 reflecting an increase in competition; utility prices changes; and the Government's intention, announced in its pre-Budget Report published on 9 November, of removing the automatic over- indexation of duties on tobacco and fuel. Taken together, on the agreed assumptions these reduced the central projection for RPIX inflation by around half a percentage point at the two-year horizon (and more before that). 20 Some members were content with the assumed effects for the first year but preferred a smaller effect in the second year. This was for two reasons. First, they were concerned that the Committee had focussed on some one-off price falls, whereas there might be some one-off upward pressures as well; for example, it was conceivable that, as real incomes and wealth rose, consumers were switching from cheaper, standard goods to higher-margin, customised or designer products. Second, there were doubts about reflecting expected changes in relative prices in the aggregate nominal price level at longer horizons given that, by targetting inflation, the Committee influenced nominal, not real, demand growth over the medium term. While the particular downward pressures might plausibly be unanticipated in the near-term, they would more likely be anticipated as time passed. In that case, the effects of relative price changes might not show up as a decline in the overall rate of inflation over the medium run. 21 While agreeing that this analysis applied in the medium to long run, those members who supported the central assumption in the forecast argued that there was sufficiently clear evidence that the downward influences on prices would increase during at least the next two years. They agreed that it was difficult to calibrate the short-run impact of longer-term structural changes such as intensified competition. The Committee agreed that the size and persistence of the specific effects were inevitably uncertain, making it important to monitor the specific effects reflected in the published projections.

Money, credit and asset prices

22 M4 growth had continued to fall, the twelve-month rate reaching 2.8% in Q3, the slowest growth rate since 1963 (when the series began). But this reflected continued falls in the money holdings of non-bank financial institutions (OFCs). OFC money and credit were generally regarded as being most relevant to analysis of monetary conditions during periods of financial market instability. 23 Excluding OFCs, annual broad money growth had been 6.1% in Q3. Within this, household M4 growth was 6.4%. M0 and household Divisia growth were each around 7%. Growth in net credit to