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Chapter I. The Home Economy

Published online by Cambridge University Press:  26 March 2020

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Extract

The phase of relatively slow growth, that started early in 1985, continued at least up to the second quarter of this year—the last quarter for which there are full national accounts. GDP was probably then some 1½ or 2 per cent higher than a year before; the slightly higher figure is suggested by the output estimate, the lower one by the average estimate. This increase depended almost wholly on a rise of 5 per cent in consumers' expenditure, whose real incomes rose rapidly as price inflation slowed down and wage inflation did not. Exports barely changed. So did public consumption. Fixed investment increased between the second quarters of 1985 and 1986, but not between the first halves of the two years—a comparison less affected by fluctuations in leasing expenditure in anticipation of changes in capital allowances. Investment in stocks was also constant, comparing half years.

Type
Articles
Information
National Institute Economic Review , Volume 118 , November 1986 , pp. 6 - 17
Copyright
Copyright © 1986 National Institute of Economic and Social Research

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References

(1) This is despite a reduction of about £2½ billion in the Reserve and an increase of £250 million in the estimate of privatisation proceeds in each of the years. The increase excluding these two items is £7½ billion in 1987/8 and £8.2 billion in 1988/9.

(2) Because—in order to represent expectations—our model includes some equations with led, as well as lagged and current, values of explanatory variables, its solution is also slightly influenced by the policy assumptions adopted for later years. There are no further tax cuts but a real exchange-rate depreciation in 1989—a medium-term projection on this basis is one of several cases (Case C) described in the note which follows this chapter.

(1) The re-estimation on the latest data of our equation for exports of manufactures has shortened the lagged response to changes in relative prices; so that, in comparison with the previous equation, more of the benefit of the year's depreciation is predicted to come through in 1987 and less in 1988.

(1) This estimate depends on employment figures which are provisional and liable to be substantially revised.

(1) Hansard, column 939, 23 October 1986.