This article considers economic developments in the European Union, North America and Japan since the February 1996 Quarterly Bulletin. These countries account for about half of world GDP, but three quarters of UK external trade.
Two topics are considered separately in boxes: the relative performance of services and manufacturing output in the G7 economies; and fiscal consolidation in Europe.
- GDP in the major six (M6) international economies barely grew in the last quarter of 1995. Activity in continental Europe weakened further. There were signs of recovery in Japan, but it was not broadly based. The US economy was affected by several special factors over the winter, but underlying growth was probably near its long-run trend.
- Inflation remained at around 2% a year in the M6 economies in the year to February 1996. Consumer price inflation fell noticeably in Germany and Italy at the start of 1996.
- Official interest rates were unchanged in the United States and Japan. The United Kingdom, France, Spain, Canada and the Scandinavian countries all cut their rates in March. The Bundesbank cut rates in Germany by 1/2% in mid-April; several European central banks followed suit. Yield curves steepened over 1996 Q1, reflecting market perceptions of a turning point in interest rates.
The international environment