Short- and long-run inflation forecasts:

In their report in February 2001, the Monetary Policy Committee of the Bank of England said that while the UK domestic economy remained firm, there were "downside risks to UK activity from the slowdown in the global economy, the recent fall in equity markets and, in the short-run, from foot-and-mouth disease."

The short-run impact of changing market conditions throughout an economy can often obscure the underlying long-run trend that is persisting. In the case of the UK economy, continued falling inflation in the first half of 2001 coincided with the foot-and-mouth epidemic.

But this was only one aspect of the whole picture. The inflation data account for the increase in fresh meat prices as the impact of the foot-and-mouth disease affected the availability of UK-slaughtered meat. Additionally, fresh vegetable prices were affected by the unusually wet weather during the winter.

But on the other hand, downward pressure on inflation was seen in items such as housing costs, as mortgage interest rate fell; petrol and oil prices also fell as road fuel duty cuts were introduced.

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