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mpc: 8 possibility in appropriate circumstances in the future. Sterling's current strength in effective terms reflected a more general weakness of the euro against most other major currencies, and there was little evidence that the present level of sterling was seen as unsustainable or fragile by the market, at least in the short term. On this view, intervention would be effective in current circumstances only if it was accompanied by an easing of monetary policy, which would not be appropriate in the present conjuncture, and to intervene ineffectively could be counterproductive.

The immediate policy decision

29 The Committee discussed the case for leaving rates unchanged, and for increasing the repo rate by 25 basis points. For many members, the choice was finely balanced. 30 Final domestic demand was growing rapidly, although in Q4 this had been offset in part by a large negative contribution from net trade. Some members thought that such an imbalance was not sustainable over the medium term. Although retail sales and consumer confidence had fallen back more recently, consumption still seemed robust, and while there were indications that house prices were no longer accelerating, there was little evidence of a slowdown in the housing market. Business investment growth was moderate but public investment was likely to grow rapidly. Government consumption would also boost total demand for the indefinite future. The net trade picture was more mixed, with the rise in sterling against the euro working in one direction, and stronger world demand in the other. While the services sector remained robust, manufacturing output had fallen in recent months, although survey evidence suggested a rather more resilient picture. The labour market remained tight and, whether or not higher earnings fed through into firms' prices directly, they would add to disposable incomes and hence to demand pressures. While oil prices were now easing back, input costs continued to rise, though there was little evidence of much acceleration in final prices. 31 On one view, it would be better not to raise rates this month. The news over the month as a whole was inconclusive, with falls in manufacturing production, retail sales and consumer confidence, and oil prices, but with the determinants of domestic demand, both private and public, remaining robust. Against that background other factors were also important. First, the extent of price pressures stemming from the labour market required further analysis, not least in disentangling the effects of bonuses and other elements of wage drift from that of settlements. Second, the analysis