The current slight improvement in economic conditions, predominantly in the eurozone, relates largely to the technical rebound following the end of the cycle of inventory reductions, as well as various budgetary support measures implemented. The PMI manufacturing sector report for September also points to a rebound in activity over the next few months. In August, manufacturing production rose in the majority of major countries, with a 1.7% m/m increase in Germany, 1.8% m/m in France and 7% m/m in Italy. However, the PMI manufacturing index relating to employment for September continues to indicate that companies still expect reductions in headcount, although at a slower rate than previously. The same applies to services. The activity index set up at 50.9 in September, above the 50-threshold again, for the first time since May 2008. Furthermore, the most leading indices, such as the business prospects index, point to a further improvement in the months ahead. All in all the composite PMI index stood above 50 for the second month in a row at 51.1, a level consistent with a rebound in activity in the second half of this year. Nonetheless, recovery is unlikely to result in a decline in unemployment or absorption of excess production capacity in 2010. Private consumer spending is likely to remain extremely weak, dampening recovery significantly next year once the technical impact of the rebuilding of inventories and the contra-cyclical effect of public stimulus programmes have dissipated. Against this backdrop, the ECB left its monetary policy unchanged after its meeting of 8 October, with no change in its stance on growth and inflation since September. However, the recent rise in the euro - if it continues - is likely to pose a threat to the ECB's macroeconomic scenario concerning both growth and prices. The euro has strengthened against all currencies over the last few weeks. The effective exchange rate has increased by around 3% since the start of the summer, reaching 1.48 against the dollar in September, its highest level in a year. To this extent, Mr Trichet said he appreciated “enormously” the U.S. Treasury’s stated preference for a “strong dollar”. Furthermore he added that “excessive volatility and disorderly movement in exchange rates “had negative impact on for economic and monetary stability. Finally he pointed that the ECB had never campaigned for the euro becoming a reserve currency. In the UK, the Bank of England's Monetary Policy Committee has left its key rate unchanged at 0.5% and is maintaining the amount of its asset purchase programme at £175 billion. In a short press release - with the minutes of the meeting due to be published in two weeks - the Committee added that it expects the total funds available to purchase assets to be used up by next month and that it will continue to review the possibility of revising the scale of the programme. Recent data and surveys for the UK indicate that the upturn in economic activity is still fragile. Firstly, the CIPS services index came in at 55.3, its highest level since September 2007, up from 54.5 in August. This is the fifth consecutive month that it has been above the 50-point mark. The average in the third quarter was 54.2, the highest level since the third quarter of 2007. Secondly, recovery in the manufacturing sector is more chaotic. The CIPS manufacturing index remained below 50 in September, sliding from 49.7 in August to 49.5. In addition, manufacturing production fell by 2.5% m/m in August, the first drop in three months. All 13 manufacturing sectors saw a dip in activity. All in all, the central bank is expected to opt for a prolonged status quo on its monetary policy. Consequently, the sterling appreciated markedly (+1.2% versus the dollar at 1.6095 and to a lesser extent versus the euro at 91.96) following the Bank’s meeting, as foreign exchange markets had feared that the BoE would cut the rate at which bank reserves are remunerated.

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