Other asset classes also experienced growth with business equipment finance up by 15%, plant and machinery finance by 12%, IT equipment finance by 8%, and car finance by 4%. The only sector to drop business was the aircraft, ship and rolling stock category which was down a third to £555m.

Total FLA finance, including deals above the £20m level, was £20.8bn, a 1% increase on the figure for 2010 and represented around a quarter of all fixed capital investment (excluding real property and own-account software) in the UK last year.

The FLA splits big ticket deals from finance written up £20m because a small number of high-value deals can distort annual growth results, either positively or negatively.

The majority of the growth was recorded through the vendor channel, with finance written by equipment vendors increasing 20% year-on-year. Over the same period, finance provided through brokers grew by 16%, and finance provided direct by the lender was up by 4%.

Julian Rose, head of Asset Finance at the FLA, said: “The growth in the use of asset finance in 2011 shows just how important this type of finance is to UK businesses. We saw growth across the board in deals under £20 million.

“Asset finance helps small businesses get the equipment they need to compete in tough trading conditions. It is an affordable alternative source of finance for a huge variety of products and equipment.”

With the exception of finance in excess of £20m, all sectors saw growth month-on-month for December and quarter-on-quarter for the fourth quarter of 2011. The greatest increase over these periods was recorded in IT equipment which grew 55% in December and 28% in the final three months of the year.

Good news from the UK’s manufacturing sector. Manufacturing production in the UK increased by 1%y/y in December, five times more than was expected. On top of last week’s survey data, policymakers will have regained some confidence in the sector. But things are still fragile. Factory output declined by 0.8% in the last quarter of the year and the overall index of production, which includes mines, utilities and oil and gas, dropped by 1.4% between October and December.

UK trade deficit falls to its lowest level since April 2003. The UK’s deficit on seasonally adjusted trade in goods and services was £1.1bn in December - narrower than the gap of £2.8 billion in November. Goods imports were still bigger than exports, but the deficit on the seasonally adjusted trade in goods fell to £7.1bn in December, from £8.9bn in November. Trade in services deteriorated a bit, but stayed in surplus at an estimated £6bn, compared with £6.1bn in November.

UK mortgage arrears and possessions stay remarkably low. UK mortgage arrears and possessions improved in 2011 compared with 2010. 1.4% of mortgages outstanding were in arrears of more than 2.5% of the outstanding balance, while possessions accounted for 0.3%. Both are at their lowest rate since 2007, before the financial crisis and when the housing market and the economy were much more buoyant. This is remarkable given the rise in unemployment and fall in real incomes. Low interest rates and lower unemployment among the home-owning age groups seem the likely explanations.

European Central Bank left rates unchanged. The ECB kept rates at 1% for the second month in a row and there was no discussion of a rate cut at the meeting. The ECB is in “wait and see” mode, and it’s no wonder given all of the changes going on. Some better economic data in January was tempered by disappointing bank lending figures and signs of a credit crunch in parts of the Eurozone. The next offer of unlimited three year loans to banks becomes available in late February. President Draghi is not alone in hoping that this will boost credit to households and businesses.

The U.S. trade deficit increased to 2008 levels in 2011. The US trade deficit increased to its highest level in six months in December. At $48.8bn it brought the trade gap for 2011 as a whole up to $558bn. This is up 11.6% from $500bn in 2010 and is the biggest deficit since 2008. Exports of goods and services grew 14.5% to a record $2.1 trillion, but imports also broke a record at $2.7 trillion. The fact that the dollar has appreciated by more than 6% since August (in trade weighted terms), will not make it any easier for the US to redress this balance.
China's inflation rises unexpectedly, but is expected to fall back. China's CPI increased sharply to 4.5%y/y in January from 4.1%y/y in the previous month, against expectations that prices would continue to moderate. A seasonal spike in food prices due to the Chinese New Year was the reason, and there is little evidence that it was more than this. Non-food inflation fell to 1.8%y/y in January, its lowest reading since October 2010.
 

CPI inflation has fallen back from its September peak, declining to 4.2% in December. Inflation should continue to fall sharply in the near term, as the increase in VAT in January 2011 drops out of the twelve-month comparison. Inflation is then likely to decline further as the contribution of energy and import prices diminishes, while downward pressure from unemployment and spare capacity continues to restrain domestically generated inflation.

In the light of its most recent economic projections, the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take three months to complete. The scale of the programme will be kept under review.

The Committee’s latest inflation and output projections will appear in the Inflation Report to be published at 10.30am on Wednesday 15 February.

The minutes of the meeting will be published at 9.30am on Wednesday 22 February.

2. Replacement needs will continue to drive new equipment acquisitions. Aging of equipment and replacement needs will be the main drivers of new equipment acquisition, as businesses await stronger signs of economic improvement before expanding their equipment investment.

3. Uncertainty over proposed changes to lease accounting will have businesses playing a waiting game. The resolution of proposed changes to lease accounting standards by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) later this year will have businesses waiting to find out how their balance sheets, earnings and other financials will be affected. Meanwhile, industry advocacy will continue to mitigate the negative impacts of lease accounting changes on US businesses and the economy. The good news is that the primary reasons to lease equipment will remain intact – from maintaining cash flow, to preserving capital, to obtaining flexible financial solutions, to avoiding obsolescence.

4. Used equipment prices will rebound in many, but not all, market segments. The collateral value of many categories of equipment that ‘bottomed out’ over the past few years will rebound in 2012. Car and truck values will be particularly strong, and construction equipment will also hold its value. Certain segments, such as corporate aircraft, will remain at relatively lower values.

5. Equipment finance companies will enhance customer relationship and support capabilities to build competitive advantages. End-users of equipment will benefit greatly from the efforts of banks and captive and independent finance companies to grow. They will be providing specialised areas of expertise and value-added customer services that will be a win-win for both lessors and lessees.

6. Credit availability will enable equipment acquisition for eligible businesses. Last year, credit approvals for the equipment finance industry remained above 75%. In 2012, businesses seeking financing for equipment acquisitions will often find credit approvals higher in the equipment finance industry than from bank loans.

7. Organisations seeking ways to cut costs and increase operational efficiencies will look to technology innovations. The flexibility, scaleability and relative costs associated with cloud computing and shared services will begin to compete with new IT equipment purchases for many businesses.

8. The continuation of a limited bonus depreciation will allow businesses to plan for equipment upgrades or expansions. The continuation of the depreciation bonus will allow businesses to write off 50% of the cost on new equipment purchases in 2012. It remains to be seen whether the 100% bonus depreciation rate that expired at the end of 2011 will be restored.

9. Global financial pressures will continue to add uncertainty to US investment in equipment. The fallout from the eurozone crisis and other international financial instability will be a wild card in how much US capital investment picks up this year.

10. Individual equipment markets will see steady growth slightly below 2011 rates. Investment in agriculture, computer and software, industrial, medical and transportation equipment will be positive, but may not match 2011 growth rates. Construction equipment investment is likely to slow in the immediate near term, but could be buoyed by the energy and housing sectors later in 2012.
 

US manufacturers and service providers followed suit. In the US the manufacturing sector grew at its fastest pace for seven months. Like the PMI, a number above 50 indicates expansion in the ISM index. The manufacturing reading rose to 54.1 in January from 53.1 in December, while the services reading surged to 56.8 from 53. Together these signal that the US economic recovery has been gathering some momentum. Employment was encouraging, particularly in the service sector where it reached 57.4 in January, the highest in almost six years, and up from 49.8 at the end of 2011. This is definitely a good start to the year which should support the US recovery.

The US labour market strengthened again in January, but in Europe unemployment is still uncomfortably high. US non-farm payrolls increased for the fifth consecutive month in January. The 243k rise helped the unemployment rate to fall by 0.2 percentage point to 8.3% - its lowest rate in almost three years. The private sector was the driver of growth and this will be well received by the Federal Reserve which has worried about structural weakness. The labour market recovery may raise questions about the need for further quantitative easing in the short term, but with continued weakness in the global economy, the real test is whether this improvement can be sustained. Eurozone policymakers looked on with envy. While unemployment was static in December, at 10.4%, its still too high for comfort, especially in Spain where the rate is 22.9%.

Eurozone and Chinese manufacturers are still struggling. Manufacturing in the Eurozone wasn’t as good as in the UK and US. The Eurozone manufacturing PMI rose to 48.8 in January, from 46.9 in December, showing that business conditions are still deteriorating, albeit at a slower rate. But even this is a remarkable turnaround, given the headwinds the Eurozone is facing. In China manufacturers are struggling a bit too. The Chinese Government's manufacturing PMI measure rose marginally to 50.5 from 50.3 in January, only just in expansion territory. The HSBC measure confirmed an improvement, but still recorded contraction at 48.8 up from 47.7 in November. Overall the combined data suggests continuing weakness.

UK and US house prices are still falling. House prices in the UK fell by 0.2%m/m in January after a similar fall in December, according to Nationwide. But the annual rate is still positive at 0.6%y/y. There’s not much chance of this picking up soon though as mortgage activity is still stagnant. Even though approvals for house purchase reached their highest level in two years, they are still only about half of the long term pre-crisis average. Given the weak economic background this isn’t surprising. But buyers are also hit by higher prices of essential goods and services. All this means that their ability to buy now is worse than in the 2009 recession. In the US there are no signs of recovery either. According to the Case-Shiller 20 City index, US house prices fell by 1.3%m/m in November. This translates to a fall of 3.7%y/y and brings US house prices back to 2003 levels. Prices are not expected to go anywhere soon either. With foreclosures still running at 3.4% compared with an average of 0.5% before 2008, there is still downward pressure on prices.
 

Steady as she goes from the Bank of England. The Monetary Policy Committee voted unanimously to leave both interest rates and its £275bn Asset Purchase Programme unchanged in January. Stronger US economic data and the positive impact of the ECB’s liquidity operations were bright spots in the minutes. And the Committee was also happy about slowing inflation in recent months, although it warns that there is still uncertainty about price growth in 2012. “Some members” were in favour of more QE once the current round of asset purchases comes to an end in February. And the weak UK economic growth data will strengthen the case for this.

UK public sector debt reaches £1 trillion – but it’s not all bad news. Despite the big number, there are signs that public sector finances are coming under control. Spending cuts along with higher receipts last year, especially from VAT, mean that public sector net borrowing was £11.3bn lower in this fiscal year than 2010/11. It now looks like the Government will undershoot the 2011/12 borrowing targets outlined in November. But the bad news is that austerity is a marathon not a sprint, so there are five more years of it ahead. Public sector net debt breached the symbolic £1tn mark in December, but this shouldn’t be a shock. When put in context it equates to 64.2% of UK GDP. This is high by historical standards, but not out of line with other major economies (US: 72.6%, Germany: 57.2%, France: 81%).

Eurozone private sector activity shows unexpected growth in January. The composite Purchasing Managers Index (PMI) for services and manufacturing moved back into expansion territory (a reading above 50) in January. The PMI rose to 50.4 from 48.3 in December, driven by a strong upturn in Germany and modest growth in France. Despite this the outlook is still weak. Inflows of new business are still falling and firms are cutting employment to reduce costs.

US economic growth was robust in Q4 2011. After a slow start to the year 0.7%q/q growth in Q4 leaves overall growth in 2011 at a healthy 1.7%. It’s not bad, but there were mixed messages beneath the headline. Increases in inventories gave the biggest push to growth whilst consumption was also strong. But the higher spending on durable goods wasn't matched by higher incomes. Elsewhere business investment was mediocre, net trade was static and the public sector shrank.

US to hold interest rates until mid 2014, but unemployment will still be sticky. On top of announcing that it will hold rates until 2014, the Fed set a specific inflation target of 2%.This is an historic move and has been a goal of Chairman Bernanke as he seeks to increase transparency at the US central bank. The Fed doesn’t see inflation as a problem though. Its central projection is below this target up to the end of 2014. But unemployment is trickier. The Fed does not see it falling from its current 8.5% to a more ‘normal’ rate within the forecast range of 5.2-6% before the end of 2014. The overall assessment of the economy was pretty downbeat, despite better data of late. While more quantitative easing was not mentioned, it is still an option. Especially with inflation below target and unemployment still high over the forecast period.
 

UK unemployment rose to 2.86 million in November. Unemployment rose by 118,000 in the three months to November, bringing the UK rate up 8.4%. The shocking thing is that the rise in the last three months accounts for two-thirds of the 169,000 rise in the last year. It’s still youth unemployment that is taking the strain. The rate for 16-24 year olds, excluding those in education, rose to 20.7% in November. It’s a quite different picture for older workers. The rate in the 35-49 age group is just 5.5% and for those 50-64 it is 5.2%. Such high levels of youth unemployment are bad news for the UK’s future skills base and productive potential. But in the short term, lower unemployment in the home-owning age range is certainly good news for stability in the housing market.

UK earnings growth slowed slightly in November and consumer confidence fell again. UK average weekly earnings growth slowed to 1.8%y/y from 2.1%y/y in October, with similar contractions in both the public and private sectors. Slower wage growth is bad news for households and consumer spending. But its worse with high inflation. Even though inflation is coming down, real earnings growth is still negative - to the tune of about 2.5%y/y. It’s no wonder that consumers’ confidence fell again in December according to the Nationwide. Not surprisingly its survey showed that consumers’ expectations about the future economic situation had deteriorated the most.

UK retail sales are remarkably resilient. In spite of the all of the headwinds UK shoppers spent just over £42 billion in December 2011. This is up 6.2% y/y or 2.6% y/y if we strip out price increases and the "best" December for five years. Automotive fuel and clothing and footwear were the big drivers. Unsurprisingly things were less buoyant in household goods where sales fell 3.6%y/y in volume terms. Nevertheless, this is very upbeat news given the conditions retailers are facing.

IMF asks for more contributions. Another sign that the Eurozone crisis isn’t over yet came from IMF Chief Executive Christine Lagarde. She asked members to contribute another $500bn in loans to its fund in anticipation of the need for up to $1 trillion in bailouts. Apart from the political arguments about who will and won’t contribute, the request doesn’t add to confidence that the crisis may be nearing an end.

US CPI inflation rate slowed in December. The annual rate of inflation fell to 3.0% in December, from 3.4% the previous month. Just like the UK, US inflation is expected to slow in the months ahead as high oil prices, which have been a big factor in higher than expected consumer price inflation, fall out of the equation.

China's economic growth at its slowest pace since 2009. The world's second largest economy grew by 8.9%y/y in Q4. This robust growth was probably influenced by higher than usual production and retail sales because of the early Chinese New Year. Its contribution brought the overall growth rate in 2011 to 9.2%y/y, down from the 10.4% in 2010. This isn’t much of a slowdown by global standards. But recent survey data suggests the brakes are still on. January’s Purchasing Managers Index showed a contraction in manufacturing for the third month in a row. This modest slowing in growth it is expected to continue into 2012 – hardly a roaring start to the Year of the Dragon.
 

UK bond holders trade off return for security. Investors are still very nervous about the global economy. In fact, they were so nervous that they were even prepared to pay for the privilege of lending £700 million to the UK government. Being seen as a safe haven is good news for the UK because it means the Government is able to borrow money at a low price. But there is a worrying side as well. Investors don't usually agree to accept a negative real return on their money. That they have done so reflects the fear of unresolved Eurozone tensions and nervousness about the outlook for the global economy.

UK exporters and industry found November hard going. UK exporters failed to repeat October's strong performance. Despite the headwinds from a sluggish economy, exports to EU countries rose slightly, while the value of exports to non-EU countries fell. This is disappointing given the need to build exports to faster growing regions. Overall, the trade deficit in goods widened to £8.6bn. But the UK's trade surplus in services increased by £0.1bn to £6.1bn, leaving November's overall trade deficit at £2.6bn. Poor domestic and international demand hit industrial production in November too. Overall it fell by 0.6%m/m in November after a 1%m/m fall in October. This weak performance adds to worries that the UK economy could have stagnated, or even shrunk, in Q4 2011.

Still no good news for the UK housing market. Surveyors still think house prices are falling. A net balance of 16% thought prices were lower in the three months to December. This is better than the 2011 average net balance of 24%, but things don't look too promising ahead. A rise in new sellers outpaced that of new buyers and suggests more price falls ahead. The exception is in London where prices are rising and are expected to continue to do so. Everywhere else surveyors expect prices to fall, with confidence weakest in Yorkshire and Humberside.

US retail sales collapsed in December. US retail sales slowed for the third month in a row in December. They increased by just 0.1%m/m, but after taking account of autos, gas and building materials they fell by 0.1%m/m. This is disappointing just as things seemed to be looking up for the US. But it could turn out to be a blip. Consumer confidence reached an eight month high in January according to the University of Michigan, driven by brighter expectations about the future outlook.

Chinese inflation fell to a 15-month low in December. A favourable base effect helped drive the headline figure drop in December, and despite a spike in food prices, the underlying trend is still down. This should pave the way for further monetary easing. The boost this could give the domestic economy would be good news for exporters to China, as would the expectation that the quota for new loans set by central government should increase. Overall, in spite of some slowing, China is still a giant on the world economic stage. The UK Chancellor’s visit to drum up business is only one small example of this.
 

In the eleven months to November 2011, new business grew by 3% to £18.7bn. For deals of up to £20m, new business climbed by  9% over the same period.

There was growth across all major asset categories, with the strongest rate of growth reported in business equipment finance, which increased by 37% year-on-year.  Over the same period, plant and machinery finance grew by 21%, commercial vehicle finance by 15%, and business car finance by 13%.

The broker market also showed strong growth, with broker-sourced new business reporting a 12% increase in November, compared with the same month a year earlier.

Julian Rose, head of asset finance at the FLA, said the figures showed businesses of all sizes were turning to asset finance.

“Around a thousand new finance contracts are signed each day. Our members are actively supporting the UK’s economic growth by helping firms to invest in new equipment to allow them to grow their businesses and protect or create jobs.” 

The result is that further loosening of monetary policy is expected in 2012, though neither the Bank of England or the European Central Bank opted for a change at their January meetings.

We don't expect any policy change from the US Federal Reserve when it meets later this month either, given tentative signs of improvement across the Atlantic.

We are likely to see further weakness in the euro as the Eurozone crisis continues to dent confidence.
 

Download the January 2012 RBS Interest & Exchange Rate Forecast

Eurozone private sector activity contracts for a fourth month. The composite PMI, combining both the services and manufacturing sectors rose in December, but only to 48.3. The PMI has now been below 50 for four consecutive months. Over Q4 as a whole, the data suggests the sharpest contraction in Eurozone activity rates since early 2009. The fallout from the sovereign debt crisis is hitting the real economy as biting austerity, tighter credit conditions and weaker than expected growth hit confidence. It will be some time before we can expect to see a sharp rebound in the Eurozone economy.

The European Central Bank’s (ECB) Christmas present to the banks. Just before Christmas, the ECB offered a helping hand to the Eurozone banks in the form of generous three-year funding. The banks had been facing funding stresses and the ECB was keen to stimulate lending. But, so far this hasn't happened. Banks seem to have simply deposited the money back at the ECB, despite the return being less than the cost of borrowing. This isn’t a good sign and shows Eurozone banks are still anxious about the economic outlook. The Eurozone crisis will remain a dominant theme in 2012. How it unfolds will depend on the success of policy-makers in taking, and acting upon, difficult decisions.

Good news on US unemployment. US policymakers will have been very pleased with the labour market at the end of 2011. An unexpectedly high 200,000 jobs were created during December. Overall the US has added 1.6 million jobs during 2011, the largest increase since 2006. The unemployment rate is now 8.5% - well down on the 9.2% recorded in August. This is in sharp contrast to the UK. Its unemployment rate has risen from 7.9% to 8.3% since August.

US economy shows resilience. The ISM survey of manufacturers and service providers strengthened during December, providing some more good news about the US economic recovery. The manufacturing PMI rose to a six-month high of 53.9 on the back of improved output, employment and new orders. While the manufacturing PMIs of the UK and the Eurozone have been below 50 since the summer, the US manufacturing sector has remained in expansion territory.

US central bank to publish own forecasts. The Federal Open Market Committee (FOMC) revealed in the last set of minutes that it will publish its expectations for the benchmark interest rate over the “next few calendar years” from January. The idea is to explain the Fed's intentions more clearly and allow it to exert more control over long term rates. The minutes also revealed some appetite for more monetary easing. However, it will be more difficult to justify this if the economic data continues to be as robust as it has been in recent weeks.

China’s slowdown continues to be mild. The two Chinese manufacturing PMI surveys improved in December. One rebounded to 50.3 and the other rose but remained below the magic 50 mark. China’s economy is being affected by weaker demand at home as the property sector struggles, and abroad as export markets weaken. Despite a slowing economy, China will still be a major driver of global growth in 2012.
 

The software leasing market, which grew 10.5% in 2011 and has experienced growth for eight consecutive quarters, is set to see the strongest growth at between 8 and 10% during the first half of 2012.

The predictions chime with the body’s Monthly Confidence Index for December which shows confidence in the $628bn (€479bn) equipment finance sector is steady, scoring 57.2, a nominal decrease from the November index of 57.4, indicating steadying optimism despite ongoing concerns about the global economic situation.

The ELFF, an affiliate body of the Equipment Leasing & Finance Association (ELFA), also predicts a strong six months for the transport and construction sectors.

The report, produced in partnership with economics and public policy consulting firm Keybridge Research, provides a three-to-six-month outlook for industry investment, credit market conditions, and key economic indicators and will be updated quarterly throughout 2012.

The report found:

•Agriculture equipment investment is likely to decelerate slightly in the next 3-6 months.
•Construction equipment investment is likely to slow in the immediate near term, but could be buoyed by the energy and housing sectors later in 2012.
•Industrial equipment investment will likely be hampered by macro-trends, which may cause some deceleration in growth from what appears to be a recent peak in the growth rate.
•Medical equipment is on watch for a leveling-off in investment spending.  Investment growth rates, while positive, have softened for six straight quarters and could bottom out in late 2012.  Still, near-normal growth is anticipated in the next 3-6 months.
•Transportation equipment investment should remain solidly positive, but is unlikely to maintain the rapid growth rates of 2011.

The report also pointed to persistently high oil prices, household deleveraging, weakened consumer confidence, and the eurozone financial crisis as contributions to restrained growth in 2012.

However, the report concluded the macro outlook for 2012 set the scene for a slow improvement, suggesting impediments to growth were expected to gradually dissipate, with more positive cyclical trends kicking in later in the year.

Three quarters of respondents to the MCI believe business conditions will remain the same over the next four months and more than 80% believe demand or leases and loans to fund capital expenditures will also remain the same.

UK unemployment rate unchanged at 8.3%. The UK unemployment rate was unchanged between October and November but the number of unemployed continues to rise. The private sector is not creating enough jobs to offset public sector job losses. Long term unemployment (>2 yrs) increased to its highest level since July 1997 and youth unemployment increased again. Two-fifths of the unemployed are now under 25. Both of these trends are troubling as they could damage the economy’s ability to grow. Given labour market slack, wage growth unsurprisingly remains anaemic at 2%y/y.

Slow start to Christmas shopping, especially on the High Street. The total volume of UK retail sales fell by 0.4%m/m in November as the squeeze on real household incomes hits homes. Stores have found it particularly difficult as consumers continue to switch towards online shopping. Non-store sales have grown by almost a fifth over the past year, and internet sales now account for more than one in every ten pounds spent on retail sales.
House prices are still falling, but transactions may be starting to rise. A net balance of 17% of surveyors believe UK house prices fell in the three months to November, compared with 24% in the previous three months. But the supply and demand balance is getting looser, which signals more falls. The sales to stock ratio fell for the second consecutive month as average stocks per surveyor increased to their highest level since December 2008. There was better news on transactions. A net balance of 14% said sales were higher in the three months to November, and for the third month in a row more surveyors thought buyer enquiries were increasing than falling.

The Eurozone crisis rumbles on. Despite the accord agreed at the 9th December EU summit, there are big doubts about whether this will be enough to solve the crisis. First, it’s not clear that the accord will actually achieve the required amount of fiscal discipline – especially given past failures in abiding by budget deficit rules. Secondly, there is no attempt to promote growth within the Eurozone, which is essential in order that debt can realistically be dealt with. The markets have reacted accordingly. The euro weakened against Sterling and the US dollar as investors shunned the euro. One euro is now worth 84p, down from a high of 91p earlier this year.

No change to US monetary policy. In the US the Fed kept rates on hold but issued a slightly more upbeat statement after its meeting. The Federal Open Market Committee noted the good news about a continuing recovery, falling inflation and "some improvement in overall labour market conditions". But it was qualified optimism. Slowing business investment and strains in global financial markets mean there are still plenty of downside risks.

Chinese manufacturing output is still falling. The flash manufacturing index survey rose to 49 in December from 47.7 last month. The rise is welcome, yet output remains below the magic 50-mark. While China’s growth is not collapsing, the authorities are concerned over the slowing trend. To this end, next year may see further monetary loosening and increased government expenditure to maintain the China growth story. Yet investment already accounts for around half of all output, so how much further can it rise?