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mpc: 2 year to October. Strong growth in German manufacturing orders, increasing 12.5% in the year to November, and a pick-up in the IFO survey measure had suggested a further strengthening in activity. Euro-area unemployment had remained at 9.8% in November. Annual inflation in the euro area had risen to 1.6% in November, from 1.4% in October. The rise in inflation mainly reflected higher energy price inflation. A5 Japanese GDP had fallen by 1.0% in Q3 but was 0.9% higher than a year earlier. Private demand had remained weak in Q3; private consumption had fallen by 0.2% and non-residential investment had fallen by 0.3%. According to the December Tankan survey, enterprises' view of business conditions had improved, although manufacturers' sentiment had improved by more than that of non-manufacturers. Retail sales had fallen by 2.4% in November, a decline of 2.9% on a year earlier. The unemployment rate had fallen by 0.1 percentage point to 4.5% in November, although measured unemployment continued to be depressed by rises in inactivity. The consumer price index had fallen by 1.2% in the year to November, but excluding food had fallen by only 0.2%.

II

Monetary and financial conditions

A6 Narrow money had grown very rapidly in December. Notes and coin had increased by 4.6% on the month, after adjustment for seasonality and the introduction of the new 50p and £2 coins. The twelve-month growth rate had risen to 12.5%, the highest since 1979. Anecdotal evidence had suggested that a large proportion of December's growth reflected increased holdings by banks and building societies; in particular, ATM stocks were thought to have been higher than normal for the time of year. But the size of these additional bank holdings had been uncertain. ATM withdrawals had also been consistent with higher cash holdings by the public than over a typical Christmas period. A7 The stock of M4 had risen by £2.6 billion (0.3%) in November, and the twelve-month rate had picked up slightly to 3.2%. The weakness of M4 reflected the fall in deposits by the other financial corporations' sector (OFCs) in November, but the M4 holdings of private non-financial corporations (PNFCs) had again risen strongly. M4 lending (excluding securitisations) had grown by £9.7 billion (1.0%) in November, and the twelve-month growth rate had risen sharply to 8.4%. Strong borrowing by households and OFCs continued to drive this robust lending growth.