The international environment

• In the fourth quarter of 1994, GDP growth was strong in the United States, but slowed in France and western Germany. US growth may have weakened early this year after the sharp rise in interest rates last year. The earthquake in Japan will have affected its growth in the first part of 1995; its impact in the longer term is uncertain, but probably less important than prospects for the real exchange rate.
• Non-oil commodity prices, in dollar terms, rose by 3% in Q1. Metal prices fell sharply in February, but the fall was offset by other commodity price rises. Oil prices rose by less than non-oil prices.
• Producer price inflation has risen further, reflecting the effect of earlier increases in raw material prices and, in some cases, lower exchange rates. Consumer price inflation has remained low.
• The exchange rate movements of recent months have affected the economic background. The effects on growth and inflation will depend largely on why they have occurred and where rates settle.

The international environment