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mpc: 5 three months, particularly in the south. Housing market activity appeared to be broadly flat, but the value of loans approved continued to grow strongly, reflecting remortgaging activity. Meanwhile mortgage equity withdrawal had fallen from £3.3 billion in Q2 to a preliminary estimate of £2.4 billion in Q3. This was still high by the standards of the past eight years, and was not unexpected given the recent increase in net housing equity, and stronger competition in the mortgage market. 17 The Committee discussed the implications of these figures for consumption, which had been higher than expected in 2000 Q3, and was 4% up on a year ago (compared with 4.3% in the year to 1999 Q3). House prices had risen sharply during 1999; as a result, whether or not house price inflation was increasing now, homeowners already had considerable collateral against which to borrow, as evidenced by the figures for mortgage equity withdrawal. So far as the remortgaging data were concerned, it was unclear whether borrowers were simply switching between lenders in response to the increasingly competitive terms being offered, or whether at the same time they were increasing their mortgages. More fundamentally, the borrowing figures suggested that consumers still remained confident about their employment and earnings prospects. 18 Since the previous MPC meeting, interest rate expectations, as implied by short sterling futures contracts, had fallen sharply: by 40 basis points or more by the second half of 2001. Taken by it self this represented an easing of monetary conditions. In addition, the sterling effective exchange rate index had fallen by around 1½%, and was now 2% below the path assumed in the November Inflation Report. This depreciation could not be explained by movements in interest rate differentials. 19 Sterling had moved less than the euro, which had appreciated by over 3% against the dollar since the Committee's previous meeting, after falling in the first half of the month. This recovery in the euro appeared consistent with a downgrading of growth prospects in the United States, and perhaps also with some moderation in global mergers and acquisitions activity.

Demand and output

20 GDP was estimated to have increased by 0.7% in Q3, unrevised from the preliminary release, and close to its average growth rate over the past year. More recently the Department of the