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mpc: 3 7 Overall, therefore, the recovery in the global economy appeared to be occurring earlier, and to be faster and more broadly-based, than envisaged the previous month.

Money, credit and asset prices

8 Short-term UK market interest rates had risen, by some 15 to 20 basis points at a one-year maturity, since the Committee's previous meeting. The latest Reuters' survey of economists indicated a virtually unanimous expectation that there would be no change in rates this month. 9 Sterling's effective exchange rate had fallen by 0.2%. There had been a rise of 0.5% against the dollar, and falls of 0.1% against the euro and 1.5% against the yen. 10 The Consensus survey of longer-term expectations for sterling published in February had shown a rise of over 8% in the effective rate expected for 2007 compared with the survey published last October. In consequence, the market now expected only a modest fall in the effective exchange rate over the next five years. The Committee considered why survey respondents had taken the view that the current value of sterling might be broadly sustainable. First, it was possible that the market had finally come to the view that sterling would continue to be strong given that it had been around the current level for over five years. However, it was not clear why expectations had shifted so markedly over the past four months. Second, it was possible that market participants now considered it less likely that if sterling were to enter EMU then it would be at a lower rate against the euro. However, since speculation about EMU entry had in the past often been associated with temporary sterling weakness, it was not clear what could have prompted such a change in view. Third, and supported by some anecdotal evidence, market participants might be giving weight to the fact that the bilateral current account deficit of the United Kingdom vis-a-vis the euro-area countries had not widened since 1996, as might have been expected if sterling had become substantially overvalued against the euro. However, Eurostat data had suggested that the UK current account deficit with euro-area countries had in fact widened over this period, although it was notable that there was a similar discrepancy between the national and Eurostat data for Germany and France. The Committee also considered other evidence relevant to the level of sterling. In particular, the rate of return on capital in manufacturing had fallen substantially in recent years, although this may have been less true in relation to the rate of return in tradable services. While the fall in manufacturing profitability may have resulted from factors additional to sterling's appreciation, it was hard to think