This month’s Regional Focus is on Western Europe, looking at the UK, Sweden and Switzerland. In all three countries the economic situation has deteriorated sharply. The respective central banks have responded with unexpectedly frequent and large rate cuts.

In all of the three countries under review, the repercussions of the international financial market crisis and the global economic downturn are becoming more and more visible. Sweden and Switzerland are still holding out relatively well, but the UK is clearly feeling the pinch from the correction on the UK housing market.

The three countries under review recorded surprisingly strong growth at the start of the year. However, there are already tell-talesigns of a slowdown as the year progresses. Rising energy and foodprices are adding to inflationary pressure. The Bank of England inparticular finds itself in a predicament.

All three countries under review recorded strong growth again in 2007, with the central banks each responding in the course of the year with further interest rate hikes. While we expect a further hike in Sweden, interest rates now look to have peaked time in Switzerland. By contrast, the UK has already lowered key interest rates twice.

The UK and Sweden both look set to record growth of more than 3 % this year. The central banks in both countries jacked up their respective key interest rates sharply in 2006 and 2007. Whereas we expect to see further rate increases in Sweden and Switzerland – which is also recording historically high growth rates – the ratehiking cycle in the UK looks to be over.

Norway and Sweden are set to lead the way with strong growth of over 3 % this year. The central banks of both countries have already jacked up key interest rates sharply and further steps are likely to follow. By contrast, the rate-hiking cycle in the UK isprobably nearing its end.

Central banks in the UK, Sweden, Switzerland and Norway have already responded to buoyant growth and rising inflation with several rate hikes. Sweden and Norway in particular have jacked up rates sharply and are likely to tighten a few more times. By contrast, the UK is probably nearing the end of the rate-hiking cycle.

The central banks in Sweden, Switzerland and Norway have countered strong growth and rising inflation with further rate hikes, with Sweden and Norway particularly aggressive in the course of the year. Both countries will need to remain on their toes to curb still buoyant growth momentum.

Central banks in Sweden, Switzerland and the UK responded to robust growth and rising inflation with rate hikes in June/August. With the economy still buoyant, Norway is likely to follow suit soon.

In western Europe it is apparent that central bank policy is moving in sync. This is likely to stabilize exchange rates in Europe. The British pound is the exception and is set to remain under downward pressure.

While Norway only recently jacked up key rates again, rate hikes in Denmark, the UK, Sweden and Switzerland are on the cards in the coming months.

The economies of the countries examined in this issue are currently developing in very different ways. Sweden and the UK have responded to the weaker-than-expected start to the year by trimming their interest rates.

Despite buoyant consumption, a turnaround in key interest rates is not on the cards at present.

European monetary policy is being kept on hold across a board front – albeit for very different reasons. The economy remains fairly robust, although momentum is slowing.