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mpc: 11 since the time of the November Inflation Report. Taking all of these factors together, no change in the repo rate was needed this month. 39 On a second view, the repo rate should be reduced by 25 basis points. The major news this month had been the sharper-than-expected slowing in world demand. Its effect would be to lower activity in the United Kingdom, and reduce RPIX inflation below what had been seen as most likely in November (which for these members was lower than the central projection in the Inflation Report because they were more optimistic about the supply-side performance of the UK economy). Taken by itself, mechanically, this month's fall in the exchange rate would tend to raise inflation, but that effect would be offset by weaker oil prices, the lower import price deflator (if sustained) and the weakness of global equities. Moreover, the downside risk to international activity was probably greater than had been allowed for in the November Inflation Report. Domestically, consumption continued to grow quite quickly, with house prices perhaps picking up. But investment growth was weaker than in the central projection, government consumption might be lower than planned and the inventory cycle was a downside risk. Leading indicators and market interest rates both suggested that the peak in growth had passed, and that growth might slow more sharply than in the central projection. The labour market could be at a turning point, although it was too soon to be sure; growth in regular pay also seemed to be moderating. Even if house price inflation remained at its recent monthly rates, and the current level of petrol prices was sustained, the annual rate of RPIX inflation would tend to fall, other things being equal, as earlier high increases dropped out of the calculation. This effect would tend to be amplified by the likely fall in oil prices and also by the possible decline in fuel duties that would result if the measures set out for consultation in the Pre-Budget Report were enacted. RPIX inflation had now been below 2½% for more than 18 months; without an early policy response it might well continue to be so for the next two years. While current monetary conditions had loosened slightly over the month as a result of the fall in the exchange rate and in market interest rates, a Dynamic Monetary Conditions Index, which took account of the effects of lags, continued to tighten slightly. At present, on most estimates for neutral interest rate levels, monetary policy was slightly contractionary; this no longer appeared appropriate. To cut rates would be a pre-emptive move which would help sustain business and consumer confidence in the event of spillover effects from a deteriorating international environment. A reduction in the repo rate to 5.75% was therefore warranted this month.