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mpc: 3 downside risks which in the event might not materialise. 7 It was nonetheless encouraging that the more gloomy expectation which had brought about the earlier falls in yields were no longer the dominant market perception, and that this recovery in sentiment had been sustained. The dollar remained strong, stock markets had been broadly stable and forecasts for growth in earnings per share for US companies in 2002 remained very buoyant. 8 The news on developments in the euro area was rather less encouraging. Growth in the first quarter was slightly weaker than had been expected at the time of the May Inflation Report, and domestic demand in Germany was slowing more quickly than expected. The Purchasing Managers' Index for the euro area as a whole was now below 50 and almost as low as it had been in 1998. 9 The slowdown in Germany was essentially domestic in its origins and had until recently been offset by a relatively strong net trade position. But the German net trade position was now weakening too, reflecting the slowdown in world trade which was also affecting the outlook for exports elsewhere in the euro area. Of perhaps greater concern were the signs of weaker consumer and business confidence in France, and weaker estimates of euro-area growth in the second quarter. In addition, the increase in inflation in the euro area would begin to erode growth in real personal disposable incomes, which would weaken consumption growth. It might also limit the scope for monetary policy action to sustain demand. Resilient consumption had helped offset the effects of the US slowdown and underpinned the Committee's projection for the euro area. So for some members the recent news suggested that the downside risks to the euro-area outlook had increased. 10 In Japan, the business sector remained weak and export volumes were substantially lower than a year ago. Signs of recovery there remained elusive.

Monetary and financial conditions

11 Growth of all the main monetary aggregates in the United Kingdom was slowing. But the main feature of the recent data was the marked contrast between the strength of household deposits and borrowing on the one hand and the relatively weaker corporate sector aggregates on the other. Total household borrowing, for example, had increased by nearly 10% in the year to April. Corporate deposits had increased by only 3½% in the year to April, down from 12% last autumn, and the