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mpc: 2 in the industrialised world. The HICP measure of inflation had risen from 2.3% in August to 2.8% in September, materially above the ECB's 2% ceiling, although core inflation was 1.4%. 4 In Japan, recovery had been supported by business investment, associated with improving corporate profitability, but the outlook remained subdued on account of persistently weak consumer confidence and continuing financial sector fragility. The Bank of Japan had recently said that the risks were mainly on the downside. 5 The Committee judged that, more generally, the balance of risks to world economic growth was clearly on the downside. Much would depend on developments in the United States; it was noted that the Committee's central projection for US growth in 2001 was now above the consensus forecast. Slowing growth was welcome, as was October's correction in equity prices, which had been associated with revised expectations of corporate earnings growth, especially in the `new economy' sectors, and with an analysis of the effects of increased leverage. It was not yet clear, however, how much of the economy was being affected by tighter credit conditions. It was possible that there would be exaggerated revisions to perceptions of the underlying supply-side performance of the economy, affecting asset prices and the dollar, if productivity growth fell in the short term as the economy slowed. While the course of the economy so far seemed consistent with a `soft landing', it was noted that it could be difficult to distinguish from the beginnings of a `hard landing'. 6 There was also somewhat greater fragility amongst emerging market economies. Credit spreads had been rising, especially in Argentina; Korea was in the midst of a difficult restructuring of the corporate sector; and Asian equity markets had fallen by about 30% since the beginning of the year notwithstanding the recovery in industrial production. Prospective emerging market economy growth was also vulnerable to slowdown in the US economy.

Money, credit and asset prices

7 In the United Kingdom, annual M4 and M4 lending growth had remained strong, even after excluding deposit and loan transactions with Other Financial Corporations. 8 Although growth in household sector borrowing had slowed slightly between Q2 and Q3, it was still about 10%, and so around the fastest rate since 1991, accounted for largely by the strength of