the euro area increased to 0. 4 % in march, from 0. 0 % in the previous month. among the components of credit to the private sector, the annual growth rate of loans increased to 0. 1 % in march, from – 0. 1 % in the previous month. loan growth in the euro area averaged 5. 41 % from 1992 to 2015 with a record low of – 2. 30 % in november 2013 and shows the first positive signs for the first time since january 2014. all this shows an improvement in the credit channel, confirming a further recovery in loan growth. according to the april 2015 ecb staff macroeconomic projections for the euro area, annual real gdp will rise by 1. 5 % in 2015, 1. 9 % in 2016 and 2. 1 % in 2017. furthermore, model - based estimates indicate that market - based measures of inflation expectations have reacted positively to the progressive expansion of our balance sheet over the last few months and have been revised upwards, as well ( chart 3a ). although euro area hicp inflation is at the same level as in 2009, the current level of inflation expectations is well above the historical low reached in 2009. breakeven inflation rates – derived from five - year german government bonds – have overcome the lows recorded in early january ( below zero ) and currently stand at 0. 85 %. having increased steadily since mid - february, they suggest that the decline of expectations was largely driven by temporary factors and that concerns about deflationary pressures have abated recently. this trend is confirmed by the evolution of inflation - linked swaps for a wide range of maturities, from which a euro area inflation curve can be drawn. market - based short - term inflation expectations have recovered from the troughs they reached in january. for the short term, inflation - linked swap rates at the one year - forward one - year - ahead horizon stood at 0. 9 %. swap rates at the three - year - forward - three year - ahead horizon would imply an average inflation rate of 1. 5 % ( taken at face value ). on a longer horizon, the widely watched five - year forward five - year - ahead indicator recovered strongly from its low point in january and at the time of writing suggests an inflation of 1. 7 %, a level which minimises concerns about a possible de - anchoring of inflation expectations. having fluctuated around its long - term average of 2. 3 % for most of 2013, the five

about the characteristics of the modern uk manufacturing base. many uk manufacturers are niche producers linked into highly integrated global supply chains. their products are not highly price sensitive, as they reflect the innovative capabilities, technical know - how and high level of skills which are needed to operate a successful manufacturing business in the uk or any other advanced economy where labour costs are high by global standards. in the short - term therefore there is limited scope for an expansion of uk manufacturing output without major investment in skills and capacity – which is consistent with the picture shown by business surveys of capacity utilisation in manufacturing such as the cbi ’ s industrial trends survey released today. 6 this suggests that an expansion of the uk manufacturing base – along with other tradable activities – can only be achieved over a period of time with investment in skills and capacity. a relatively competitive exchange rate can help support that process, but the value of the pound also has other important macroeconomic effects which need to be taken into account by the mpc. sterling ’ s depreciation since 2007 has added significantly to imported inflationary pressures in the uk economy and this is particularly unhelpful at present when we are seeing a renewed surge of energy and commodity price inflation. and the resulting squeeze on disposable incomes is clearly a factor holding back the growth of consumer spending in the short - term, offsetting the boost to growth we might be seeing from improved trade performance. throughout the postwar history of the uk economy, policy - makers have had to strike a balance between the impact of the external value of the currency on the competitiveness of exports and its potential effect on inflation through import costs and the pricing climate. in my view, we have allowed the pound to depreciate more than is necessary or desirable to support the growth of manufacturing and exports. for example, allowing sterling to rise by about 10 % from its current level against the euro ( £1 = €1. 13 ) would still leave it at a relatively competitive level by historical standards ( £1 = €1. 25 ). the very significant fall in sterling from mid - 2007 to early 2009 probably helped to support manufacturing industry and exports and hence stabilise the economy in the depths of the recession. but now the world economy is recovering, exports and manufacturing activity are being strongly boosted by the growth of world trade. meanwhile, worries about deflation have been replaced by the concern that the uk economy now faces a sustained period of relatively high inflation which is endangering our