Economic commentary

• The relative strength of the dollar so far this year has helped to restrain inflation in the United States while adding to inflationary pressures elsewhere.
• There are signs of a slowdown in the US economy, where monetary policy has now been eased, but in Germany and Japan output continues to grow strongly and monetary policy has been tightened in both countries.
  
  
• There has been some further adjustment of trade surpluses and deficits in the three major economies, though this may in part reflect the short-run effects of dollar strength.
  
  
• Consumer spending in the United Kingdom is subdued and the indications are that the increases in interest rates seen over the past year are delivering a better balance of output and demand.
  
  
• Inflation has edged up but is unlikely to rise much further. The authorities moved to forestall the inflationary consequences of a fall in the exchange rate by increasing interest rates in May.
  
  
• The trade deficit narrowed further in the second quarter, despite depressed oil production. There has been a significant improvement in the balance on manufactured trade.

Economic commentary