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mpc: 4 A14 The average of inflation expectations reported in the Treasury survey of independent forecasters had fallen slightly to 2.3% in 2001 Q4. Survey-based measures of inflation expectations for the next two years had also fallen slightly. Trade union expectations had fallen to 2.8% from 2.9% in December 1999. The inflation expectations of the general public had fallen slightly to 4.4%, but these were still well above the inflation target. A15 Equity prices in the United Kingdom had been relatively volatile since the previous meeting. The FTSE All-Share index had fallen by 2% since the previous MPC meeting, with the IT sector down 29% from its peak in early March. Since October 1999, however, the FTSE IT sector had nearly doubled in value, while the FTSE All-Share had risen by around 8%. A16 Since the previous MPC meeting, sterling had appreciated by 0.6% against the US dollar (to $1.5915), but had depreciated by 0.3% against the euro (to 60.67p) and by 1.1% against the yen. The sterling effective exchange rate index (ERI) had depreciated by 0.3% since the previous MPC meeting. This month, movements in sterling against the US dollar had been consistent with `monetary news', though movements in sterling against the euro had not. The sterling ERI was 0.3% below the February Inflation Report's modal projection.

III The Budget

A17 Staff presented a summary of the March 2000 Budget, which had focused on changes in the Treasury's projections compared with the November 1999 Pre-Budget Report. The policy changes announced for 2000/01 and 2001/02 had increased discretionary spending in particular, but had been more than offset by non-discretionary changes to spending and revenues. Much of the weaker-than-expected spending and stronger-than-expected revenue outturns in 1999/2000 had been considered to be structural by the Treasury, and were therefore assumed to continue to reduce borrowing over the forecast period. A18 The net effect of the changes to the projections had been to reduce projected borrowing in 2000/01 and 2001/02. A surplus of around £5 billion was now projected for 2000/01, £4 billion more than in the Pre-Budget Report, while a surplus £2 billion higher than in the Pre-Budget Report was projected for 2001/02. So in the near term, the Budget represented a modest tightening in the fiscal stance relative to the Pre-Budget Report. From 2002/03 onwards, higher borrowing had been