mpc.theyserveforyou.com

mpc:

MINUTES OF THE MONETARY POLICY COMMITTEE MEETING HELD

ON 6-7 DECEMBER 2000

1 Before turning to its immediate policy decision, the Committee discussed the world economy; money, credit and asset prices; demand and output; the labour market; prices; and any tactical considerations relevant to its decision.

The world economy

2 The news over the month suggested a rather more pronounced slowdown in the world economy, particularly in the United States, than in the central projection in the November Inflation Report. The issues were how fast this deceleration would be, to what extent any faster-than-expected slowdown would be offset by adjustments in monetary policy, and the implications of slower world growth for inflation prospects in the United Kingdom. 3 Although the slowdown in the United States now seemed rather greater than had earlier been expected, some moderation in US growth was necessary (and indeed welcome) if demand were not to outstrip productive capacity and put upwards pressure on prices. The extent of the slowdown required to bring the economy into balance would depend on the sustainable rate of growth in the United States, and in particular on how far the recent increase in productivity growth was a result of structural improvements, rather than cyclical factors. If the use of information technology outside the IT sector delivered further productivity gains, growth in potential supply might remain relatively rapid for some time to come. Estimates of the sustainable rate of growth were inevitably uncertain. But the greater the productive capacity of the economy, the less demand would need to slow to restrain inflationary pressures. 4 Recent US data pointed to a moderation in the pace of growth. Estimates of GDP growth in Q3 had been revised down slightly to 0.6%. Manufacturing output and retail sales were up only a little in October; more recently chainstore sales had been weak. The latest survey from the National Association of Purchasing Managers showed another small fall in the index, which was at its lowest level for two years, while growth in non-farm payrolls continued to slow. Share prices had been volatile, but had fallen over the month, with consumer confidence declining and some evidence of a