The pace of  2  BIS Review 76/2001  demand growth in the US needed to slow down - as of course it has, dramatically, to the point where growth in the US in recent quarters has pretty well come to a halt. The big questions now are whether we are at the low point, and what might we expect in terms of the strength of a recovery. And the reality is that no-one can be confident that they know the answers. What we do know so far is that there has been a sharp downwards inventory correction and a contraction of investment notably in ICT which was so buoyant before, with associated declines in equity prices and in US imports. Consumption growth, supported by a strong housing market has so far held up rather better than might have been expected. Looking forward, on the positive side, one could point to the strong monetary policy response to the slowdown, and to the recent tax rebate, which have yet to have their full effect. There were some suggestions in recent capital goods orders figures that the rate of decline in investment spending may now slow. And the rate of inventory liquidation had stabilised pointing to a turn at some point so long as consumption continued to be reasonably well sustained. Consensus opinion, or so it seemed to me, had become modestly optimistic. At least that was the prospect until Tuesday and the appalling terrorist attacks in New York and Washington.
But the ECB has had to take account, too, of domestic demand pressures within the euro area, and of the fact that, even on the core measure, Euro area inflation was moving up gradually to the top of the ECB's 0-2% range. Frankly I don't see how anyone can be confident whether the ECB had it precisely right or wrong - it is perfectly normal for even the best-informed people to disagree on these judgements, as anyone who reads our own Monetary Policy Committee meeting minutes will tell you. But I am wholly confident that the ECB is sensitive to the issues surrounding those judgements, including the downside risks in the US, as indeed it demonstrated a fortnight ago. So, too, are we in the United Kingdom. In our case, we again enjoyed relatively steady overall economic growth through last year, combined with a further fall in unemployment to its lowest rate for over 25 years. Inflation meanwhile continued to run below the Government's 2½% target - and is currently running at around 1½% on the eurozone measure of inflation. This relatively low inflation rate was partly a result of the dampening effect of sterling's surprisingly persistent strength against the euro. The problem for us - and it is a real problem which has been with us for some time now - is the sectoral (and associated regional) imbalance within our overall economy.