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mpc: 4 A15 Since the previous MPC meeting, interest rate expectations about the immediate future as measured by the gilt repo curve had remained unchanged, but expectations at longer maturitieshad fallen by around 40 basis points. Over the month, long-term UK yields had movedparticularly closely with US bonds. UK corporate bond yields had fallen in line with gilt yieldsproviding continued incentives for companies to issue debt. The February rate rise had been fullypassed through to the average standard variable mortgage rate, but there had been a continuedtrend for lenders to provide greater discounts for new mortgages. A16 A fall in real forward interest rates derived from the yield curve had accounted for the fall in nominal forward rates at the long end. At shorter maturities the fall in nominal forward rateshad been attributed to a fall in inflation expectations. Survey-based measures of inflationexpectations for the next couple of years had remained below 2.5%. A17 The FTSE All-Share index had risen by 3.2% since the previous MPC meeting, while the FTSE Small Cap index had risen by 10.6%. Since October 1999, the FTSE IT sector had morethan doubled in value. A18 Since the previous MPC meeting, sterling had appreciated by 1.6% against the euro, but depreciated by 1.7% against the dollar and by 3.8% against the yen. The sterling effectiveexchange rate index (ERI) had appreciated by 0.6% over the same period. Monetary news hadbeen unable to explain bilateral exchange rate movements. The sterling ERI was 0.1% below theFebruary Inflation Report's modal projection.

III

Demand and output

A19 Quarterly GDP growth at constant market prices had been unrevised at 0.8% in 1999 Q4, though the annual growth rate had been revised up to 2.9% from 2.7%. Quarterly growth in 1999Q3 had been revised up to 1.0% from 0.8%. Total industrial production had risen by 0.1% in1999 Q4. Manufacturing output had grown by 0.5% in 1999 Q4, while service sector output hadgrown by 0.9%, unrevised from the preliminary estimate. Construction output had grown by0.7% and agriculture had grown by an unusually strong 1.2%. A20 The National Institute of Economic and Social Research had estimated that the three- month on three-month GDP growth rate had been 0.8% in February. A21 The expenditure breakdown of GDP showed that domestic demand had grown by 1.9% in Q4. Final domestic demand had grown by only 0.9%, however, as the change in inventories hadcontributed 1.0 percentage points to quarterly growth.