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MINUTES OF MONETARY POLICY COMMITTEE MEETINGON 12-13 JANUARY 2000

1 Before turning to its immediate policy decision, the Committee discussed the world economy; money and asset prices; demand and output; the labour market; prices and costs; and other considerations relevant to its decision.

The world economy

2 The Committee considered developments in the world economy since the publication of the November Inflation Report. Outside Japan activity in Asia had strengthened perceptibly, as it had in the euro area, which was the single most important market for UK exporters. According to the most recent estimates, euro-area GDP had increased by 1% on a quarterly basis in 1999 Q3, with growth in the previous quarter revised up to 0.6%. The recovery now seemed to be spreading to Italy and Germany, in the latter case confirming the more buoyant picture shown by business confidence indicators and orders data, both of which had risen further in recent months. 3 GDP growth in the US in 1999 Q3 had been very strong, at 1.4% on a quarterly basis. More recently, in December US consumer confidence, as measured by the Conference Board, had risen to its highest level for over 30 years, and non-farm payrolls had continued to increase rapidly. While labour market data suggested considerable pressure on resources, this was not reflected in the capacity utilisation measures themselves. 4 Although both oil and non-oil commodity prices were rather stronger than had been expected in November, there had as yet been limited pass-through into prices further along the supply chain, particularly at the retail level. This might reflect lags, or the persistence of spare capacity in the world economy, putting downward pressure on margins. Alternatively, it might be related to stronger productivity growth, especially in the US. Following the extensive revisions to past data, most estimates of trend GDP growth in the US had been revised up. Equity prices might also suggest that expectations of sustainable growth were stronger than previously, but it was too soon to be sure whether such a rerating was valid, or whether stock markets had overshot on the upside. 5 To the extent that the rise in the price of technology stocks reflected expectations of rapid improvements in productivity, the boost to demand associated with the rise in share prices might be