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Demand and output

12 On preliminary ONS data, output growth had slowed from 0.9% in Q2 to 0.7% in Q3. Forward-looking business surveys had generally weakened slightly. 13 The Committee's inflation and output projections assumed that private sector demand growth would slow considerably. This would be necessary if inflation were to remain in line with the 2½% target, given the planned increase in government spending. The outlook for consumption, accounting for roughly 80% of private sector spending, was therefore especially important. The backward- looking data and forward-looking indicators presented different pictures. On the one hand, retail sales had risen by 0.6% in September and by 1.3% between Q2 and Q3, faster than for a while; and the Bank's regional Agents reported contacts as seeing steady sales growth. On the other hand, equity prices and house prices had been broadly flat; survey measures of consumer confidence were weaker than in the summer, although they had recovered from the petrol crisis-induced fall in September; and the CBI Distributive Trades and British Retail Consortium surveys were weaker. In addition, the Committee projected that unemployment would soon stop falling, which could affect confidence. In the near term, it was possible that the transport problems and floods, although localised, would affect aggregate household spending for a while and make the monthly data hard to interpret. 14 Investment growth ­ particularly in the services sector ­ had been slower than for some time in Q1 and Q2. Although the Q3 data were not yet available, some members thought that the outlook had become weaker over the past month or so. On the one hand, equity prices had not risen much in recent months, the market for initial public offerings was currently more difficult, and credit conditions had recently tightened somewhat as measured by the spread of corporate bond yields over swap rates (although by less than in the United States). On the other hand, corporate sector borrowing remained strong, as did surveys of service sector investment intentions. On balance, the Committee decided to incorporate into its central projections a slightly lower profile for investment growth than in August. 15 The Treasury representative updated the Committee on the Government's Pre-Budget Report, which was published during the Committee's Wednesday afternoon session. Nothing material to the Committee's projections had changed since the Committee had been briefed the previous week. Higher planned spending was financed by higher-than-previously-expected revenue, and there was little net impact on the Committee's medium-term projections. Recent tax revenue outturns seemed to