The completion of the European Community's internal market will be achieved through the removal of a host of non-tariff barriers to trade and the mobility of factors of production and the liberalisation of the conditions for the provision of service activities inside the single market. This completion of the European Community's internal market will enhance the locational advantages of European markets.

This paper examines whether EU membership enhances or diminishes the UK's financial sector stability, and therefore its prominence in global finance. The UK is host to the largest share of financial services in the EU, despite being outside of the Eurozone. An important reason is that, as a member of the EU, the UK has direct access to the Eurozone's financial infrastructure. If the UK leaves the EU (and EEA) banks and other financial services firms may continue to have access to the Single Market, but they are unlikely to have direct access to the Eurozone's infrastructure. Banks in the UK will no longer be direct members the Eurozone's payments system. The swap arrangement between the European Central Bank and Bank of England would have no legal enforcement mechanism. Resolution of cross-border banks would be more challenging with less incentive for a cooperative outcome. While some may welcome the reduced size of the financial system, not without reason, this could be achieved more effectively with domestic regulation than by leaving the EU. Given the uncertainty that would follow a vote to leave, there is a risk of capital flight.

The impact of recent advances in information technology on output and productivity growth has been one of the key research questions in the past few years. A consensus has emerged that the use of information and communications technology (ICT) capital has had a significant impact on aggregate economy-wide labour productivity growth through the capital deepening channel in the United States in the 1990s (see the discussion and references in the papers below). Evidence is also emerging of a delayed but nonetheless significant impact in European and other OECD economies. These findings have stimulated additional research using microeconomic data focusing on both the industry or company level.

This article is a response to a piece in this journal, by David Bartram, which questions the validity of a vast literature establishing consistently a U-shaped relationship between age and happiness. There are 618 published studies that find U-shapes in that relationship in 145 countries, and only a handful that do not. Of the 30 countries that Bartram (2023, National Institute Economic Review, 1–15) examines, he finds U-shapes in 18. We show compelling evidence of U-shapes in the remaining dozen countries. Supporting evidence of a U-shape is found in objective measures including deaths of despair, depression, stress and pain that are worst in midlife.

The Review has been appearing now for almost twenty five years. The assessments it has contained of the short-term prospects for the domestic economy have become progressively more quantitative and detailed, but have included from the beginning an explicit forecast of total output at least a year into the future.

In this Review the Institute's world economic forecasts are for the first time produced with the aid of a large quarterly econometric model. The general features of this model are described in an Appendix to the World Economy chapter in this Review. The model is based on the WEP (World Economic Prospects) model which has been operated and developed by economists in HM Treasury for more than a decade. However, exchange rates in WEP are exogenous, and this article discusses the estimation of an exchange-rate system for the model, and its implications in terms of overall model properties.

This chapter considers the prospects for the British economy over the next five years. The intention is not to put forward an unqualified set of numbers as a forecast with a strong probability; to do so would be to pretend to a knowledge of the future—of political and world events as well as economic developments—which we could not possibly possess. Our more modest aim is to present a conditional projection, based on ‘unchanged policies’, as a frame of reference for appraising the scale of future problems and the use of economic policies to combat them.

This article examines the accuracy of the National Institute's forecasts of incomes, inflation and employment from 1965 to 1975. It is found that in recent years the Institute has tended to underestimate inflation, although less seriously for the consumer price index than the other current price variables studied. The accuracy of the forecasts has generally increased in relative terms, although it has deteriorated in absolute terms. The forecasting performance in 1974 was particularly poor but there has been a distinct improvement in 1975 and 1976.

This article calculates the equilibrium real exchange rate for the UK economy. The long-run trade and supply side relationships from HM Treasury's model are used to estimate the level of the real exchange rate consistent with the UK economy growing at its ‘natural’ rate while achieving a sustainable current account position. The model shows that the real exchange rate associated with macroeconomic equilibrium lies well below the actual rate for most of the 1990s. This result has important implications for possible UK participation in the single European currency as, once the nominal exchange rate is fixed, overvaluation can only be corrected by holding UK inflation lower than that elsewhere. Achieving this may be costly in terms of jobs and output.

Examining data for 79 immigrant source countries and six OECD member destination countries during the years 1975–2000, we find that source-destination cultural differences inhibit international migration. We also report that existing immigrant stocks act to offset, at least in part, the migration-inhibiting effects of cultural differences. Employing educational attainment as a proxy for skill, we find variation across low-, medium-, and high-skilled immigrant cohorts both with respect to the cultural distance-migration relationship and in terms of the extent to which existing immigrant stocks offset the influence of cultural differences. Our results appear robust to econometric techniques, sample composition, and endogeneity issues.

This paper explores the extent to which annuitants might be prepared to pay for protection against cohort-specific mortality risk, by comparing traditional indexed annuities with annuities whose payout rates are revised in response to differences between expected and actual mortality rates of the cohort in question. It finds that a man aged 65 with a coefficient of relative risk aversion of two would be prepared to pay 75p per £100 annuitised for protection against aggregate mortality risk while a man with risk aversion of twenty would be prepared to pay £5.75 per £100; studies put the actual cost at £2.70–£7 per £100, suggesting that unless annuitants are very risk averse it is likely that existing products tend to over-insure against cohort mortality risk.

The themed section of this Review includes four papers that look, through different lenses, at the evolution of the UK income distribution — the components and dynamics of income over time. Each contains significant new contributions to our understanding; taken together with other contributions to this literature, they paint a much richer picture of this issue, and provide some pointers about what we should be looking for in the future.

Modelling the monetary sector has long been seen as problematic. Conventional demand for money functions have typically failed to cope with the experience of the past 15 years (Judd and Scadding, 1982) and models based upon the counterparts to monetary growth have fared little better. The current interest in buffer stock money (see Cuthbertson and Taylor, 1987, for a recent survey) can be seen as a response to the failure of the more traditional approaches. We believe that the issues involved in the empirical implementation of the buffer stock hypothesis are subtle and that the literature to date has not dealt with them satisfactorily. In spite of the substantial difficulties involved, we think that a system approach to buffer stock modelling (for example, Davidson, 1987a) may be unavoidable to ensure theoretical consistency.

This article presents a methodology for decomposing ex ante forecasting error into exogenous variable error, data revision error, model error and judgement error. This methodology is applied to the forecasts made by the National Institute in February 1975 and February 1976. The first section describes the methodology including the NIESR forecasting procedure. Then the NIESR model (with some of its problems) is discussed together with the data used in the study. The methodology for decomposing the forecasting error to 1975 is applied and a similar analysis presented for 1976. Some conclusions and a summary complete the article.

Since the last NIESR forecast in October the Government Actuary's Department (GAD) has released new projections of the UK population. In comparison to previous projections these show substantial upward revisions to growth in the population of working age and to total population growth from 2005 to 2007. From 2008 and onwards there have been smaller upward revisions. Figure 1 illustrates the profile for growth in the population of working age implied by both the GAD 2003-based and the most recent GAD 2004-based mid-year projections.

With completion of the EC internal market in sight and economic and monetary union by the end of the decade looking probable, concern about social and economic disparities within the European Community has been growing. In the single market, the intensification of competition can be expected to expose the weakness of regions in difficulty, while the transition to EMU will place considerable burdens of adjustment on inflation-prone economies. On the whole, it is parts of the Community which are already disadvantaged, such as Greece or the South of Italy, which are most vulnerable to these changes.

We evaluate the long-run distributional effects of cuts in the public expenditure on education. The article simulates a dynamic model of the earnings distribution. Earnings of individuals differ because of differences in innate ability, and additionally if their education levels differ. We model a dual system of education as in the UK or US, where the state finances public education by taxation. Parents may choose to educate their children privately by spending more. Using parameter values estimated by other researchers for the UK, we evaluate the likely long-run impact of changes to education expenditures. These estimates suggest that the long-run impact of modest changes to public education expenditures on the inequality of earnings are likely to be substantial.

Over the past fifteen months oil prices have steadily risen from around $60 a barrel to over $100, as we can see from Figure 1. The projections in our forecast are based on information from futures markets and on projections by the US Energy Information Administration, and as prices have risen there has been increasing evidence that they are considered to be overshooting a sustainable position, as can be seen from our projections for oil prices. Oil prices are expected to fall back to $90 a barrel by the end of 2009. Hence the current oil price shock can be seen as a combination of a temporary increase and a permanent increase in oil prices. The impact of increases in oil prices on growth depends in part on the reasons for the increase, with the effects of supply reduction induced increases in prices being more negative than demand induced increases in prices. A supply reduction involves a loss of revenue for producers as compared to a fixed volume demand induced rise in oil prices, and hence a supply reduction would result in lower levels of imports by oil producers.