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REVIEW OF LAST WEEK'S DATA

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At the beginning of last week the markets were not expecting the Bundesbank to agree to cut its official interest r...
At the beginning of last week the markets were not expecting the Bundesbank to agree to cut its official interest rates at the Central Council meeting held on August 24th. But weak M3 data published earlier in the week raised expectations.

On Thursday these revised expectations were not disappointed when the Bundesbank announced that its official Lombard rate and discount rate would both be cut by 0.5 of a percentage point to 5.5% and 3.5% respectively. These are the lowest levels for these interest rates since January 1989.

Central banks in Austria, Belgium, Denmark and the Netherlands followed the Bundesbank's lead and also cut their key interest rates.

Although sterling is no longer tied to the deutschemark bloc of currencies, these moves could have an impact on the course of UK interest rates. If they allow sterling to rise a little over the next few weeks, that would be another factor supporting the chancellor's view that higher rates are not needed.

The chancellor also got some support last week from the revised GDP data, which showed a rise of 0.5% in the second quarter of the year, down fractionally from the initial estimate of 0.6%, and from the CBI survey of industrial trends, which showed a further decline in price expectations.
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