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mpc: 6 16 On the demand side, consumption had increased by 1.3% in the second quarter, which was slightly faster than envisaged in the August Inflation Report forecast. Growth was expected to be much slower in the third quarter. This partly reflected the effects of the timing of Easter and the Jubilee holidays on the pattern of retail sales. There had also been a very sharp decline in car sales; this slowdown might have reflected a smaller stimulus from new registration plates than the previous year. Some other indicators suggested continuing strength: retail sales had risen by 0.6% in August, and stood 5% higher than a year earlier; consumer confidence surveys suggested continuing optimism, and in particular the latest GfK survey had shown households' confidence in their own economic position over the next twelve months to be at a record high. Although the household saving ratio had fallen to 4.5% in the second quarter, the household sector had still been broadly in financial balance in that quarter. The greater-than-expected rise in house prices would tend to offset the influence of the fall in equity prices on consumption, and might lead to a stronger near-term prospect for consumption than envisaged in the August Inflation Report. However, average quarterly growth in consumption in the first three quarters of 2002 taken together was likely to be lower than for any comparable period in the previous few years. Moreover, it was possible that the effect of the fall in equity prices on consumption could increase over time, if more households were to find that their savings were inadequate to repay their endowment mortgages or to provide for their pensions. This last concern, however, might not be material within the period relevant to the Committee's policy decision. 17 Business investment was estimated to have been broadly unchanged in 2002 Q2, although a further fall had been expected. But the latest revisions to the National Accounts data showed that business investment had fallen more sharply in 2001 Q4 and 2002 Q1 than previously estimated, so that the level of business investment in Q2 was broadly in line with the August Inflation Report. It was possible that the increase in uncertainty following the terrorist attacks on 11 September had had a greater impact than previously believed. However, this did not necessarily imply that any subsequent recovery would now be stronger. Uncertainty concerning both economic prospects and the international situation was still high. The latest report on manufacturing by the Chartered Institute of Purchasing and Supply (CIPS) had shown new orders of investment goods much lower in August than in April and May. The Bank's regional Agents had reported that the level of investment in the service sector was expected to fall in the next twelve months relative to the past year. Corporates' gross operating surplus had fallen in 2002 Q2, while profit warnings in September had risen to their highest level in 2002. And the cost of capital had risen in the second quarter, with the fall in equity prices not fully offset by lower long-term interest rates, while there was evidence that some foreign financial