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Chapter II. The Forecast to 1972

Published online by Cambridge University Press:  26 March 2020

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After rising slightly between the second and third quarters, output in the economy as a whole seems to have stagnated in the fourth quarter. Because of the dip in the first quarter of the year, however, output in the second half of the year as a whole may have been 2½–3 per cent up on the first half (at annual rates). The course of the industrial production index has been affected by strike activity, making it more difficult to use as a base for estimating GDP. But taking the average of the three months' figures in the fourth quarter (there were erratic movements month to month), and comparing it with values for base periods less affected by strikes than was the third quarter, gives a figure for GDP which suggests that output in the economy as a whole was stagnant in the last six months of 1970. The recent rise in unemployment is consistent with this picture.

Type
Articles
Information
National Institute Economic Review , Volume 55 , February 1971 , pp. 22 - 37
Copyright
Copyright © 1971 National Institute of Economic and Social Research

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References

Notes

note (1) in page 25 See, for example, National Institute Economic Review, no. 47, February 1969, page 12.

note (2) in page 25 Past experience shows that the anticipatory build-up of United States steel stocks in advance of the three-yearly wage negotiations (whether a strike actually comes about or not— and one seems quite likely this time) draws in imports from Britain, though partly at the expense of steel destined for other markets. This time, the competitive position of domestic producers in the United States is weaker and exports from the EEC and from Japan are restricted by an agreement to which the United Kingdom is not a party.

note (3) in page 25 A separate analysis was conducted, on an experimental basis, of exports to EEC countries. In addition to an aggre gate equation, disaggegated commodity export equations were also used. The results suggested that the rise in the value of exports to the EEC this year might reach 81/2 per cent, an estimate broadly consistent with predictions derived by other means.

note (1) in page 26 We did in fact compute a variant on the main forecast in which the annual rate of rise of average earnings was main tained at the 14-14 1/2 per cent levels estimated to have been reached in the last quarter of last year. The result was to raise the rate of growth of consumption through 1971 by 1 per cent, the increase in output by less than 1/2 per cent and prices by about 3/4 per cent, as compared with the main forecast (the earnings profile for which is shown in table 4).

note (2) in page 26 The third row has been calculated using individual settlement increases and cannot be derived from the first two.

note (3) in page 26 If this settlement is taken out of the figures the percentage increases quoted in the top row of the table still show a fall in the last quarter of the year. The reverse is, however, the case for the bottom row of the table, largely owing to the inclusion in that quarter of a group of workers who obtained a fresh settlement in an unusually short period of time.

note (4) in page 26 To the extent that the wages explosion of last year is interpreted as an attempt to ‘make good’ the ground lost during the initial post-devaluation period, some de-escalation would also be expected. An advance in real labour incomes has, after all, been obtained and government policy can benefit from the pause before prices pick up faster. Our de-escalation assumption involves a flagging rate of advance in real labour incomes, but it does not involve a drop. Through 1971 and 1972, real average earnings (pre-tax) are expected to rise by nearly 4, and by just under 3 3/4 per cent, respectively.

note (1) in page 29 This implies that producers other than the six countries party to the present agreement increase their prices too, roughly in line with the Gulf pact.

note (1) in page 33 ‘Public expenditure 1969-70 to 1974-75’, Cmnd 4578.

note (1) in page 35 See note (1) page 36 below.

note (2) in page 35 The figures of annual percentage changes given in the White Paper itself exclude such expenditure and are for a growth of 2 and 3.2 per cent, respectively, in 1971/2 and 1972/3.

note (3) in page 35 This is an attempt to adjust for the fact that the prices of goods and services purchased by the public sector tend to rise faster than those in the private sector. The argument is that rates of earnings will tend to rise at the same rate in both sectors, but productivity rises faster in the private sector than in the public sector (where, indeed, the national accounts, for want of a suitable means of measuring output, use labour inputs as a proxy, entailing the assumption of a zero rate of productivity improvement).

note (1) in page 36 Rather more if, as we have assumed for purposes of the investment forecast, the 1970/1 programme is not achieved. The much larger overall shortfall figure for 1970/1 (which was based on information about actual public expenditure in the first half of the financial year) compared with the estimate of shortfall in 1971/2 (especially if the large contingency allowance for the latter year is also taken into account) is onsistint with this assumption.