This article considers economic developments in the European Union, North America and Japan since the November 1995 Quarterly Bulletin. These countries account for about half of world GDP, according to IMF figures, but three quarters of UK external trade. The effect of fiscal consolidation on world growth is considered in detail in a box.
- The international environment for UK exports weakened in the second half of 1995, mainly because of slower growth in Germany and France. Growth was surprisingly strong in the United States in the third quarter. In Japan, the foundations appear to be in place for a recovery in activity in 1996.
- Inflation in the G7 economies remained flat on average at under 21/2% per year in the third quarter of 1995. Italy was the outlier, with inflation sticking at around 6%.
- Reflecting weaker growth and improved inflation prospects, official interest rates were cut in Europe and the United States in December 1995. Bond yields fell further in the fourth quarter, except in Japan.
The international environment