EUROPE'S SURPRISE RATE CUT

Inflationary pressures in the euro-zone are all but absent, with an average inflation rate in the region of just 1 per cent. But, for all the reassurances about Europe being a "pole of stability", the euro-zone has been hit by, the slowdown in global growth. Business confidence is sagging, industrial production figures are worsening and trade has become a serious drag on growth. The latest official 1999 growth forecast for the euro-zone is 2.5 per cent; many analysts believe the outcome could be lower still. The rate cut will help to prop up growth, but is very unlikely to have any serious inflationary consequences. It lessens the probability of a damaging period of euro appreciation after the launch of economic and monetary union which, apart from the effect on European growth, could have been destabilising for the global economy. And by setting an interest rate which will be expected to hold for some time, a potential source of uncertainty will be removed from the early months of EMU.