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mpc: 3 approached and downside risks further out - associated either with the build-up of non-OPEC supply or with a more rapid slowdown in world demand than was currently foreseen. 8 Though the experience of previous oil supply shocks was unlikely to be repeated, it was possible that further sharp movements in the price of oil could lie ahead. On this view, it could be a year or more before the non-OPEC supply response would begin to have a marked effect in restoring oil prices to more normal levels. In the meantime, prices could fluctuate quite sharply and this volatility could dampen world activity by denting confidence. 9 The Committee noted that the UK was better placed than some other countries to allow monetary policy to accommodate the first round effects of any supply-related shock to oil prices, with the economy currently operating at close to capacity and with inflation somewhat below target. In addition, in contrast to most OECD countries, the UK's position as a net oil exporter meant that the balance of payments and fiscal effects of an oil price rise were likely to be positive. 10 The consensus of outside forecasters was that the increases in the price of oil since the spring would reduce world activity by about half a percent. This was a somewhat more muted effect than had followed similar price movements in the past, reflecting reductions in the intensity of oil use since earlier shocks and the fact that the real price of oil remained significantly below previous peaks. In any case, some slowing of the world economy had been expected, and indications that it was now occurring simply confirmed those expectations. In addition, it was possible now that the OPEC countries would spend more of the extra income generated by the higher oil prices, because of changes in their financial positions. This would provide a larger offsetting boost to world export growth than had previously been the case. 11 Some members of the Committee, however, assessed the recent news as pointing to a risk of a sharper slowdown in world growth than had seemed likely at the time of the previous meeting. Market expectations for interest rates in the G7 countries had fallen over the past month, and the OECD leading indicator had now been falling since January. Imbalances in the world economy persisted and might be increasing. The benign forecasts for the world outlook were predicated on a soft landing in the US together with stronger activity growth in Europe.