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mpc: 2 greater, at least in the short run, than the supply-side effects from higher future productivity. The extent to which the rise in the price of technology stocks may have affected consumption was unclear, although increases in wealth more generally helped to explain the low US personal savings ratio. 6 The Committee discussed the implications of these developments for the US balance of payments. If trend growth in the US were indeed higher, the present current account deficit might narrow once the improvements on the supply side, which were perhaps already being anticipated by higher demand, began to feed through. If these improvements did not materialise, portfolio investment and capital flows linked to mergers and acquisition business could rapidly reverse, especially if stock markets fell back, with a risk that the dollar might decline sharply. 7 The Committee concluded that while the risks from a fall in stock markets and from current account imbalances remained significant, these had been present for some time and had not changed in degree over the past month or so. These risks aside, the outlook for world economic growth was now stronger than it had been, and the recovery in Continental Europe, which seemed to have become more firmly based over the past month, was of particular importance to the UK through its prospective effects on net trade.

Money and asset prices

8 Narrow money had surged in December, with notes and coin increasing by more than 4½% in the month, and with the twelve-month growth rate (of 12½%) at its highest for twenty years. This appeared to reflect end-year or end-millennium effects, including greater-than-normal stocking of ATMs and higher cash holdings by the public. A sharp reversal in the level of notes and coin now seemed to be under way in January. The Committee agreed that these movements were unlikely to have wider implications for the rest of the economy; both these and the pattern of retail sales around the turn of the year might be examples of seasonal or millennium `fog' which obscured the underlying position. By contrast, once allowance was made for the weak growth of deposits by Other Financial Corporations (OFCs), the underlying growth in broad money was rather stable, at around 6%. 9 M4 lending to households had again been strong, with the twelve-month growth rate the highest for eight years, and the Bank's estimate for mortgage equity withdrawal had been revised up