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MINUTES OF THE MONETARY POLICY COMMITTEE MEETING ON8-9 MARCH 2000

1 Before considering the implications of the latest data for the immediate policy decision, theCommittee discussed the implications of the forthcoming Budget; recent developments in demandand output; money and asset prices; the labour market; prices and costs; the world economy;other forecasts of the UK economy; and other considerations.

The Budget

2 The Committee had been briefed by Treasury officials prior to its meeting on the broad shape ofthe forthcoming Budget's macroeconomic projections and public finances. The fiscal outturn for1999/2000 was tighter than had been expected at the time of the Pre-Budget Report, but much ofthat tightening had already happened and was in the data. Essentially, the broad picture was one ofboth higher tax revenues and lower public spending. The Treasury's estimates were for thecyclically-adjusted Public Sector Net Borrowing Requirement for 1999/00 to be almost 1% of GDPtighter than thought at the time of the November Pre-Budget Report, and looking forward that itwould remain some ¼% to ½% tighter over the next two fiscal years. 3 The Budget's spending profile assumed that the current fiscal year's underspending would bemade up in subsequent years, but spending was otherwise broadly unchanged as a share of GDP inaggregate terms since the Pre-Budget Report. There had, however, been some changes within theaggregate. In particular, lower social security spending ­ lower transfers to the household sector ­was offset by higher government consumption spending. Since the marginal propensity to spendout of these transfers was likely to be quite high, the demand-weighted impact of these changesmight be broadly offsetting. 4 The Committee discussed the possible implications for inflation. Three factors were discussed.First, much of the tightening was already in the data. So the relationship between, for example,consumption and post-tax income was different from that expected at the time of the Pre-BudgetReport, and would need to be re-examined in the next Inflation Report forecast round. Second,since the reasons for the rise in tax revenues were not well understood, it was possible that thosehigher revenues would not persist ­ statutory tax rates had not been raised. However, it was notedthat the fiscal projections were, as usual, produced on the basis of cautious assumptions, forexample that the ratio of VAT to consumption would fall somewhat over the period of theprojections, albeit from a higher starting point. Third, it was possible that higher tax revenues