General assessment

Activity in the UK economy has been more buoyant than expected, with output responding well to the earlier increase in demand and unemployment continuing to fall. Growth seems set to continue, although there is some concern about the recent strength of domestic demand and rapid credit growth, as well as about the last two months' trade figures. The prospects overseas are a little less encouraging than previously, as regards both growth and inflation. The period of exchange rate stability initiated at the Louvre and reconfirmed at the Venice summit should assist adjustment of payments imbalances but only if other internationally agreed policies are implemented effectively. Developing countries continue to face a difficult environment, with debt negotiations entering a new phase as major banks have announced higher loss provisions on their lending to problem countries. This Assessment considers the implications of this unusually mixed set of developments for the conduct of monetary policy.

General assessment