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Other forecasts of the UK economy

29 The Committee briefly considered the differences between the February Inflation Reportprojections using market interest rates, and a range of recently published outside forecasts. Themain differences seemed to be on inventories and on the price/earnings nexus. On inventories, theMPC's projection assumed a continuing decline in the stock-output ratio. This partly reflected aview that there might be further efficiency gains from the exploitation of information technology.Most other forecasters did not appear to assume a continuation of a downward trend in thestock-output ratio. Differences of view on the cyclical influences on inventories, and theunwinding of any millennium-related adjustments, might account for some of the difference in2000. There was no simple explanation for the differences that emerged on prices and earnings,which reflected a variety of different judgments. Other forecasts, however, seemed to embody amore benign short term trade-off between growth and inflation. The Committee would return tothese issues in the normal course of the quarterly forecast round.

Other considerations

30 The Committee concluded that the timing of the Budget was not a constraint on their decisioneither this month or next. 31 There had been a widespread expectation that the Committee would not change interest ratesthis month, although a further rise was still expected by the summer. The Committee agreed that achange in interest rates this month would come as a surprise to the market and would need to beexplained carefully. That of itself should not be a constraint on individual members' decisions, butthe Committee would need to take into account the prospective effects of any surprise to themarkets.

The immediate policy decision

32 A variety of factors were identified which pointed to higher prospective inflation than a monthago, and to which members attached varying weights. First, the underlying pace of demand growthover recent quarters might be even stronger than initially thought, partly because it was against abackdrop of a tighter fiscal position than previously expected for 1999/00. Retail sales volumes inJanuary had also been much stronger than expected and, taken together with some other demandindicators, supported the view that fast demand growth had continued into the first quarter of 2000.In addition, the Committee's projection for domestic demand was below the average of outsideforecasts for 2000, albeit largely on account of a highly uncertain contribution from inventories.