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REVIEW OF LAST WEEK'S DATA

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In the UK, M0 grew 1.2% in December, to a level 5.9% higher than a year earlier. The major component of M0, the st...
In the UK, M0 grew 1.2% in December, to a level 5.9% higher than a year earlier. The major component of M0, the stock of notes and coins, accelerated sharply, adding weight to recent anecdotal evidence of a significant rise in retail spending over the Christmas period. However, interpretation of December's data is complicated by the problems statisticians have making seasonal adjustments for the festive period.

These latest money supply figures are unlikely to have any effect on UK monetary policy. Although M0 continues to grow at a rate well above the government's 0-4% monitoring range, interest rates have recently been cut, and further signs of real economy weakness could prompt further reductions in the months ahead.

The UK's purchasing managers' index rose from 49.9% to 50.7% last month, suggesting a marginal recovery in the manufacturing sector following a minor contraction in November. The output component continues to recover from June's low point, while the price component suggests inflationary pressures remain subdued. A key feature of the survey is the information it provides on inventories. Stocks of finished goods continue to fall but concerns about high stock levels are easing.

Meanwhile, the purchasing manager's index in the US also edged up last month, from 46.5% to 47.3%. However, unlike its UK equivalent, it remained well below the 50% level marking the threshold for expansion in the manufacturing sector. There was positive news on inflation, with the index measuring price pressures falling to its lowest level since July 1991 when the economy was emerging from recession.

German manufacturing sector data provides further evidence of subdued European activity. While industrial production remained stagnant in November, rising just 0.1% on the levels a month earlier, the more indicative two-month figures show production falling 1.5% compared with output in August and September.
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