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The Economic Situation: Chapter I. The Home Economy

Published online by Cambridge University Press:  26 March 2020

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Extract

This reassessment of the economic situation and prospects does not have to be a long one. There was no reflation in the Budget, and nothing has happened to alter the main framework of the forecast for national output published three months ago. In our view, in the absence of policy changes, output during 1967 will be rising at a rate around 2 per cent a year. (The rise, comparing the two calendar years, will be much less than this—perhaps about 1 per cent.) Unless there has been a sharp downward break in the trend of underlying productivity observed in recent years, this output forecast implies that unemployment will be rising perhaps by 8-10 thousand a month (wholly unemployed, seasonally adjusted).

Type
Research Article
Information
National Institute Economic Review , Volume 40 , May 1967 , pp. 4 - 13
Copyright
Copyright © 1967 National Institute of Economic and Social Research

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References

note (1) page 4 Sales of cars and alcoholic drink accounted for half the rise in consumers' expenditure (in real terms) between the fourth quarter of 1964 and the first quarter of 1965; and two- thirds of the rise in expenditure between the fourth quarter of 1965 and the first quarter of 1966.

note (2) page 4 A new registration letter will be introduced in August this year, so that the seasonal pattern of sales will presumably shift again.

note (3) page 4 The expenditure estimates of national output suggest a rise between the third and fourth quarters of last year. This seems very unlikely, given the movement of the industrial production index and of unemployment. So, to reconcile the expenditure estimates with the ‘compromise’ estimate of national output, it has been assumed that the fall in stocks was understated. (This is also suggested by the very low import figure.)

note (1) page 6 See page 12.

note (2) page 6 This 1.4 per cent rise in consumer prices is rather less than the forecast rise in retail prices, of 1.9 per cent for the same period : this arises from the sharp change in the com position of consumers' expenditure (page 12). The rise of 0.75 per cent in retail prices in April is probably largely accounted for by the increase in local authority rates, which usually leads to a high retail price rise in April (1.2 per cent in April 1966, 1.9 per cent in April 1965).

note (1) page 7 ‘Volume of exports of goods and services will rise by 3 to 4 per cent between the second half of last year and the second half of this year’, Budget Statement, Hansard 10 April 1967, col. 993, line 6.

note (2) page 7 This illustrates one of the difficulties about the publication of official forecasts. It is possible that the Government is privately forecasting a rather bigger increase in wage-rates after July than the publicly expressed expectation of 6 per cent in hourly rates (from July 1966 to December 1967). Even if the Government privately expects that it will not get all the restraint it hopes for, it can hardly be expected to say this.

note (3) page 7 H.M. Treasury, Economic Report on 1966, page 7, HMSO.

note (1) page 12 The 8 1/2 per cent rise for the outturn of the financial year 1966/67 would, on the published figures, require a very big increase in the first quarter of the year. It seems more plausible to assume that the fourth quarter figure for 1966 will be revised upwards; and this is what we have done (table 3).

note (2) page 12 These higher standards include greater floor space, better heating, more kitchen fitments and bedroom cup boards, and additional electric socket outlets. In 1966 over 60 per cent of local authority contracts included the Parker- Morris standards for floor space and heating—the two most expensive requirements—compared with just over 40 per cent of the contracts in 1965. This higher proportion will be reflected in output in 1967.

note (1) page 12 National Institute Economic Review No. 39, February 1967, page 37.

note (2) page 12 Defined here as an index of the wage and salary bill divided by an index of employment.

note (3) page 12 Financial Statement, 1967-68, page 23.

note (1) page 13 Part of the sharp rise during 1966 is explained by the changing pattern of consumption—in particular the drop in car sales If in the fourth quarter of 1966 cars had had as big a share in total consumers' expenditure as in the fourth quarter of 1965, the rise in the consumers' price index during the year would only have been 3.9 per cent, as against the recorded figure of 4.2 per cent. This effect will probably be reversed during 1967.