The international environment

• Economic activity has strengthened in France, Germany and Japan, but recovery is likely initially to be modest and large output gaps will remain.
• Inflation has continued to fall in most major countries. But a number of forward-looking indicators such as commodity prices and, in the United States, high capacity utilisation point to some upward pressure on future inflation.
• Despite higher activity and lower inflation, financial markets have continued to be volatile in recent months. Bond yields have risen further and the dollar has weakened.

The international environment