The most recent peak in the production of UK manufacturing industries was in 1973; ten years later, in 1983, the level of manufacturing output was still 15 per cent lower.

In the same period the official output index for services (as measured by value added and other methods) increased markedly and one of its sections—Division 8, covering banking and finance, insurance, leasing, business and professional services—grew particularly rapidly, by about 70 per cent.

Concern over poor standards in mathematics among English school leavers has led to a number of government initiatives in recent years. Without a secure foundation of mathematical understanding and competence during the primary school years, later learning in mathematics is problematic. This paper examines recent major initiatives at the primary stage of schooling and their effect on raising standards, including the National Numeracy Strategy and the Improving Primary Mathematics (IPM) project. The latter project, influenced by successful Continental approaches to teaching mathematics, aimed both to raise average standards of attainment and to reduce the large variation in attainment that has, in the past, characterised the performance of English pupils.

Although the new teaching approaches, and the innovatively detailed teaching materials, developed by the IPM project have enabled significant improvements to be effected, concern remains over the low attainment in England of an unduly large proportion of pupils (as compared with Continental schools). It is suggested that serious consideration needs to be given to adopting arrangements that are the norm in several other countries — namely, to introduce some flexibility in age of entry to schooling (at present in England this is governed strictly by date of birth). Such a change would, it is suggested, significantly reduce the number of low attainers and range of attainment within a class, and make a teacher's task of successful interactive whole-class teaching more manageable.

From mid-1955 to mid-1958, in the words of the Economic Survey, ‘the growth in home demand had to be restrained in order to check the rise in prices and to safeguard the country's external position’. the main purpose of this article is to examine how far the Government was successful in promoting price stability through restraining demand. The second part of the article discusses the next wage round and the prospect of maintaining price stability this year.

The realignment of the ERM in September, and the subsequent withdrawal of the UK and Italy from the mechanism, have caused a degree of uncertainty in the financial markets. In our last forecast we were anticipating a realignment of the lira at the end of September (National Institute Economic Review No. 141) but we expected a more orderly adjustment of exchange rates than took place. We analysed the effects of a realignment in a note in the August 1992 Review, and we expected the consequences to stimulate activity in Europe. The uncertainties surrounding the exchange-rate outlook make our main case less sanguine than it would otherwise have been. The resulting prospects for slow growth in Europe have to be combined with a modest recovery in the US and Canada and continued below capacity growth in Japan. The success of Governor Clinton in the US elections bodes well for growth in the US, at least in the short term, and this may offset the poor performance elsewhere in the OECD. However, the distinct possibility of a trade war following on from the collapse of the GATT round cannot be ignored, and such an outbreak would make our forecast much more pessimistic.

In both 1977 and 1978, on average over the year, using a standardised international definition, the rate of unemployment in Britain about 6 per cent. This was about 1 per cent higher than the rate recorded for the average of all countries in OECD. Since then the rate of unemployment has risen in most countries, but by more in Britain than elsewhere. Our rate has gone up from 6 per cent to 13 per cent, while the OECD average has gone up from 5 per cent to about 8 per cent.

This is the third and last in a series of articles comparing macroeconomic policy in this country and in our largest European neighbours. A comparison with France was published in the Review in November 1984 and with Germany in November last year. The Italian economy is less well known in this country than that of either France or Germany. As a result its achievements may not be so widely appreciated. There have been no doubt, and remain, serious economic problems in Italy, but on balance it is the continued vitality of that country that needs to be better understood. In particular we are bound to ask how economic policy has contributed to economic development in Italy given the very difficult political environment in which it has had to operate for much of the past decade.

Ever since its beginning, the Review has devoted attention to the development of commodity prices in world markets. In both our statistics (at present in table 26 of the Statistical Appendix) and our forecasts in the World Economy section we have been focusing on price indices reflecting the importance of major commodities in the exports of primary producing countries.

Most discussion of the balance of payments and its implications for exchange-rate prospects and economic policy falls into two distinct categories. Some authors focus on the current account alone while others argue that in a world of liberalised capital markets information from the volume of trade flows will simply be swamped by flows of highly mobile international capital. In this note we argue that both these viewpoints are too extreme; in aggregate both the current and capital accounts will matter.

Alternative measures of the UK output gap are considered for 1984–2007. The real-time series is strongly affected by the rolling-time estimation of the trend, and produces a picture of the business cycle which is not consistent with contemporary perceptions of the large fluctuations of the late 1980s and early 1990s. A new, ‘nearly-real’, measure developed here may be better for estimating historical reaction functions. In the context of the current recession, none of these mechanically derived measures of the output gap are useful. Policymakers should make careful estimates of the likely fall in potential output on the basis of other information.

A memorandum recently submitted by the Purchasing Officers Association to the National Incomes Commission reports that there have recently been many increases (averaging 4-5 per cent) in the prices of engineering products, and suggests that many of these were not justified by changes in costs. Similar reports and conclusions have appeared in the press.

Monetary policy should be guided by macroeconomic models with limited nominal rigidity; ‘New Classical’ or even for some issues just plain Classical (i.e. with no nominal rigidity at all) models are perfectly adequate for understanding various aspects of the economy that have previously led economists to believe in a high degree of nominal rigidity. On UK data these models account for the facts of inflation persistence and exchange rate ‘overshooting’; their impulse responses are in line with the data; and a typical example, the Liverpool Model, is marginally accepted in its entirety by the data since 1979. Such models suggest that no increased macro instability would result from taking the rigours of monetary policy one stage further from inflation targeting and ensuring that the price level itself is returned to its long-run preset target path — so that the value of money over long periods of time would be utterly predictable.

It is likely that in the next few years a substantial amount of attention and comment will be devoted to the state of the public finances. In his budget, the Chancellor of the Exchequer, Mr. Norman Lamont, forecast that the Public Sector Borrowing Requirement (PSBR) for 1992–3 would be £28 billion or 4 1/2 per cent of GDP. This figure should be contrasted with the government's own policy of balancing the budget over the medium term and the objective set out in the Maastricht Treaty on European Union of avoiding ‘excessive budget deficits’. In this context, a topic of some interest is the likely pace and scale of any improvement in corporation tax receipts as the economy recovers from recession.

This paper analyses the role of wealth in the National Institute model of the World Economy (NIGEM). It also addresses the issues of fiscal solvency and the rote of the government budget constraint. We start with a brief theoretical and empirical overview of wealth and consumption functions. We then describe the introduction of public sector blocks into the model and summarise our approach to the determination of wealth. The paper then reports on a set of diagnostic simulations using NIGEM. We analyse the effects of a permanent fiscal expansion and its implications. We also discuss the importance of solvency constraints on the government in the solution of a forward looking model without Ricardian equivalence. We then analyse the effects of a change in equity prices in one country relative to those in the rest of the world.

Manufacturers' and distributors' views on the effects of the Price Code towards the end of Stage 4 are summarised in this article. Since the onset of the recession, market conditions rather than price controls have determined price-levels. Market constraints have limited the use of profit safeguards and low profit relief as well. The Price Code, however, was widely blamed for contributing to lower profit-margins, particularly in its earlier stages; this was mainly because of the productivity-deduction, lack ofpricingflexibility, and delays in obtaining price increases. Less generally affected were investment, sales and marketing activities, and price-differentiation. Views on the changes to the Code required in a reviving economy are summarised.

In the past three years the US dollar has been declining whilst the US current account deficit has expanded, and these two developments are clearly linked. However, the causes of the decline in the dollar and the solution to the US deficit may not be as closely related as at first may appear. The emergence of a sustained deficit does not automatically necessitate a fall in the exchange rate, and a fall in the exchange rate may not correct such a deficit. Deficits can exist if the currency moves above its sustainable real exchange rate, and a real depreciation can remove such a deficit. Deficits caused by exchange rate movements are likely to be more temporary than those that either emerge for long-term structural reasons or result from structural imbalances in the economy. A structural deficit can be the consequence of low domestic saving or high domestic government borrowing. If domestic investment is very profitable then even high levels of domestic saving may still result in a savings shortfall, and the high returns may induce a structural capital inflow which will produce a sustainable current account deficit as a consequence. All these factors have influenced the increase in the US deficit in the past decade, and it is difficult to see how a correction to the deficit can occur without one of the domestic drivers changing in some way. Here we present a set of simulations using NiGEM to examine the impacts of alternative adjustment scenarios and their global implications. Before adding to the debate about the possible remedies, we will attempt to establish the sources of the current conjuncture, as the alternative adjustment paths for deficits and for the dollar depend on the sources of misalignment.

Three broad categories of transformative changes have been recommended in The Economics of Biodiversity: The Dasgupta Review (henceforth Review): (i) The need to address the imbalance between our demands on Nature and its supply. (ii) The need to change our measures of economic success. (iii) The need for institutional change. However, what the private citizen would like to find in the Review differs from what someone in a government department or an international agency or a private company seeks. These notes have been prompted by the many virtual meetings I have had since the Review’s launch and they further explore aspects of the Review’s recommendations.

Brexit has both increased the momentum towards Scottish independence and complicated what it could mean in practice, especially if Scotland rejoins the European Union (EU). EU accession would re-open the flow of goods, people, services and capital between Scotland and other EU member-states; a corollary of this, however, would be new restrictions on movement between Scotland and its non-EU neighbours. Effective border management entails a variety of ‘at the border’ and ‘behind the border’ processes. As much as these would require dedicated infrastructure and trained personnel, they would ultimately depend upon reliable data/information and good communication among myriad agencies, including on the other side of the border. Fundamentally, the nature and form of the border controls would be determined largely by the relationship that an independent Scotland had with the remainder of the UK—and, principally, on the relationship that the UK develops with the EU.

Dynamic optimisation problems involving rational expectations require a transversality condition to produce a unique solution (see Hall, Henry and Wren-Lews, 1986, for an example). These transversality conditions generally amount to a statement about the nature of the endogenous variable in the infinite Song run; for example, that the long run involves a stable equilibrium. An analagous problem arises in econometric macro models, where a unique solution requires a ‘terminal condition’ for any forward-looking variables beyond the solution period of the model. Transversality and terminal conditions are not equivalent, however, because we cannot solve macro models into the infinite future (see Hall and Henry, 1988, pages 192-198).