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mpc: 4 There were some indications that that outturn might not be realised, with signs of slowdown in both the euro area and the United States. Second quarter growth in the euro area had been 0.9%, rather lower than was projected at the time of the August Inflation Report. Retail sales data and confidence surveys suggested that growth in the euro area might have slowed significantly in the third quarter. In contrast, activity had been stronger in the United States. The risks to the world outlook might on balance therefore have increased. Higher oil prices might depress consumer and investment spending. The marked falls in equity prices over the month could be an early indication of further slowdown in prospect. The possibility of further sharp movements in oil prices suggested that confidence could weaken and could lead to delays in planned investment. These risks would need to be examined in the context of the forecast for the November Inflation Report.

Monetary and financial conditions

12 Monetary data continued to show strong growth. Annual growth in notes and coin had increased by 1.8 percentage points to 8.7% in September, though perhaps a third of this increase reflected banks' precautionary build-up of cash holdings at the time of the disruption to fuel supplies. M4 growth in August had increased to 8.8%, its highest rate for two years, affected in part by transactions related to 3G telecommunications licences and to Lloyds TSB's takeover of Scottish Widows. Aggregate Divisia money growth was rising steadily and now stood at just under 6%. Total credit growth, at 13%, was the strongest since 1991 and though household M4 growth had eased a little it remained at levels last seen a decade ago. Secured lending to households had returned to the level established in the middle of 1999, reversing the dip in July. Mortgage equity withdrawal had been positive for two quarters and was expected to continue to support consumption in the coming months. Recent rapid growth in the level of corporate borrowing seemed to be related principally to the financing of merger and acquisition activity and to the purchase of 3G telecommunications licences, so was not inconsistent with the rather weak outturns for business investment growth in recent quarters. The overall picture was therefore somewhat stronger than a month ago, but remained broadly consistent with expectations at the time of the August Inflation Report.