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MINUTES OF THE MEETING OF THE MONETARY POLICY COMMITTEEHELD ON 8-9 NOVEMBER 2000

1 Before turning to its immediate policy decision, the Committee discussed the world economy; money, credit and asset prices; demand and output; labour market conditions; and prices and costs; and then reviewed the November projections for output and inflation. The Committee had been briefed by Treasury officials on the Government's Pre-Budget Report in the week before its meeting.

The world economy

2 While world output growth had been faster than expected in the first half of the year, it now seemed to be slowing. In the United States, there had been a sharp fall in recorded growth between Q2 and Q3. Investment growth had slowed, including in the information, communications and technology (ICT) sector. This might signal a wider re-evaluation of the prospects for ICT-based business and, if it persisted, might affect the growth of productive capacity. Looking ahead, a number of factors would prospectively restrain growth: the stronger dollar, tighter credit conditions, softer equity prices and the rise in oil prices, as well as the earlier increases in official interest rates. A sustained slowdown therefore looked more likely now than when the Committee had produced its August projections. The implications for US inflation were, however, less clear. On the one hand, slowing growth and moderating oil prices would help to restrain inflation; core CPI inflation had fallen slightly to 2.5% in September. On the other hand, tight conditions in labour and product markets were evidenced by an acceleration over recent months in earnings and producer prices; and it was possible that, even with somewhat slower growth, the level of aggregate demand would be above the economy's productive capacity. Some members thought that the degree to which equity prices fell in anticipation of lower corporate profits would be a key determinant of the relative supply-demand balance and inflation. 3 In the euro area, the annual rate of output growth had been close to 4% in Q2. The Committee noted the misperception that the area's economic performance had been weak: the annual rate of growth had, in fact, been faster than in the United Kingdom in every quarter since the monetary union was established. There were, though, now signs of a slowdown. For example, recent data on orders, retail sales and consumer confidence had been weak. Partly on account of the euro's continued depreciation, the rise in oil prices had had a larger impact on inflation in the euro area than elsewhere