The article investigates the determinants of consumer price inflation in China. While inflation has been entirely driven by international factors, such as food and energy prices, in the period preceeding the financial crisis, domestic drivers like monetary developments and nominal wages have become increasingly important since then. Due to tight trade linkages and the presence of Chinese firms in international production chains, the changing pattern is also relevant to other countries.

In 1960 and 1961, the National Institute Economic Review published some articles on the car industry, on the demand for certain consumer durables, and on the demand for energy; all of them included forecasts for the years 1965 and 1970. The present article conducts a post-mortem on the performance of these forecasts so far : in particular, it compares the forecasts for 1965 with the actual figures. It then goes on to revise the forecasts for 1970—and in some cases to extend them—taking account of what has happened in the last five years.

Recent economic developments in Asia have proved significantly worse than anticipated. Year-on-year GDP growth in China slowed to 6.8 per cent in the final quarter of 2008, the slowest rate of growth since 1991 and well below the government's target rate of growth of 8 per cent that is required to maintain a stable employment rate. It is difficult to establish the source of the Chinese slowdown with the available data. Fixed capital investment continued to expand rapidly, and the trade surplus in value terms rose to record high levels in the final quarter of the year. This suggests that consumption was weak, although retail sales figures indicate strong growth in the final quarter of the year. We have assumed that the slowdown observed in the fourth quarter was driven primarily by domestic demand. The collapse in global trade this year will have a significant impact on Chinese exports, given that nearly 50 per cent of Chinese goods exports are in the machinery and transport equipment sector. We expect GDP growth to average about 5½ per cent this year, with growth reverting above 8 per cent per annum only in 2012.

The earnings of manual workers in the public and private sectors for the years 1970-77 are examined. The marked improvement in the relative pay of public sector workers which had been noted in earlier work is confirmed. It is found that in the period from 1970 to 1976 the relative pay of the public sector improved by over 10 per cent. In 1977 there was a movement back in favour of the private sector of about 2 1/2 per cent, but this still left the relative pay of public sector manual workers 10 per cent higher than in the 1950s and 1960s.

This paper is concerned with two limited but complex questions: to what extent was the recession of 1979–81 foreseen in the forecasts made while I was Editor in 1977–9, and does the experience of that episode provide any general lessons for forecasters?

This article compares the performance of the UK economy since 1997 with that between 1979 and 1997 and with the performance of the other G7 economies in both periods. It concludes that Britain has done relatively well in terms of productivity growth, economic growth and national income per head but not very well in terms of labour market performance. Savings rates were too low to deliver sustainable economic growth over the period 1979–97 and there has been very little improvement since then. The performance of the economy during the recession and its immediate aftermath has been disappointing relative to the other G7 economies.

The National Institute is currently studying ways of improving its methods of short-term economic forecasting. The two articles which follow report on some of the recent work undertaken in two parts of the field, namely exports and imports.

In the case of exports, our methods hitherto have been rather subjective. The first article is the account of a more rigorous procedure proposed for one part, though a very important one, of total exports of goods, namely exports of manufactures to industrial countries. Attempts to find procedures of analogous rigour for exports to primary producing countries have, so far, failed to throw up anything very useful. For imports, our procedure has for some time been rigorous, in the sense of making use of postulated econometric relationships. Thus the second article does not so much propose a new method as elaborate and modify existing methods in a way which may prove to be more satisfactory.

Although there is some uncertainty about the prices at which trading takes place on the oil market, there is no doubt that the falls in oil prices since the early part of this year amount to one of the most significant economic events of the 1980s. If falls of such magnitude are maintained, investment plans in the oil sector, and depletion policy, could be affected. Furthermore, other supply-side changes may be set in train, due to the relative price (of oil to other fuels) change, and switches in profitability from the oil sector to other sectors of the economy. There are other, more immediate and quantifiable effects of oil price changes however: on demand, on the exchange rate and on prices. In this note we will offer estimates of the second set of effects, abstracting from effects on North Sea oil investment, and from any effects that improved profitability of the non-oil sectors of the economy may exert on investment apart from those associated with the increase in macroeconomic activity. A ‘no change’ assumption for oil investment is made for convenience, and to ease comparison with other simulations reported subsequently in Section 3. As for investment in the non-oil sector, our econometric work has failed to detect an influence for company profits once full allowance is made for expected future sales by this sector.

The construction of an economic forecast involves a blend of the use of a set of formal equations summarising to the best of the model-builders' ability the dominant characteristics of the past behaviour of the economy, together with a complex set of judgements about the way in which these equations have recently behaved and are likely to behave over the forecast period. We, in common with other forecasters, have published papers about the characteristics of our formal model and about particular equations, but little about the rather flexible way in which the model is actually used to produce a forecast. This Note is an attempt to redress the balance somewhat. It is also intended as an explanatory note to the table of residual adjustments which, beginning with this issue of the Review (see p. 19), we intend to publish regularly as part of the background to our quarterly forecasts.

All forecasts are hedged around with uncertainties, and for some time we have been publishing error bands on our forecasts. The National Institute was the first mainstream forecaster to provide an indication of the chances that two key forecast variables, output growth and inflation, would be in particular ranges. The error ranges we used were calculated from past forecast errors and on the assumption (consistent with the data) that these errors were normally distributed. Shortly after we began publishing our probability bands, the Bank of England started to provide its own indication of the error range for its inflation forecasts and, some time later, for its projection of output growth. The Treasury, by contrast, provides no indication of the chance that the Government current account will be in any particular range although this is arguably the most important variable discussed in the Pre-budget Report.

In this country, when Governments change tax-rates, their main purpose is usually to alter the general level of demand. They clearly need to know, as best they can, how much effect on demand various types of tax change will have. Further, outside the Government, any short-term forecast of the economy also needs to make some estimate of the consequences of tax changes.

It is a trivial truth that manufacturing matters while at current relative prices there are plenty of willing purchasers of manufactured goods. The question addressed in this article is whether it is important how much of that demand for manufactures is met from UK sources. There seem to be three general lines of argument which have been pursued. The first is that if manufacturing is low in relative importance then, since the UK is an open economy, it is relatively difficult for other sectors to generate the foreign exchange necessary to pay for the desired net imports of manufactures. In these circumstances the balance of payments acts as a brake on economic growth. The second line of argument is that because of its inherently faster rate of growth of productivity, particularly at the high technology end of the spectrum, an emphasis on manufacturing allows the economy to grow faster. The third argument is largely distributional; namely, that a decline in manufacturing would have wide knock-on effects on other firms and on employment.

The work that can be so far summarised is concerned with five main questions. First, what are the extent and nature of the waste of human resources implicit in the existence of differences between regions in the labour market, widely interpreted? Secondly, what are the extent and nature of inter-regional differences of real income? Thirdly, what is the nature of the differences between growth-rates of industrial employment in different regions? Fourthly, what is the general pattern of inter-regional movement of population and of job opportunities and (very tentatively) is there any sign that regional population growth is part of a self-reinforcing process? And, finally, what can be said about the effects of government policy on the distribution of industry and employment in recent years?

Let us briefly remind ourselves of the current policy-context of this issue in Britain. The need to raise children's schooling attainments to a very substantial extent has become widely accepted in the past fifteen years following international comparisons (many based on research at this Institute) of workforce vocational qualifications and school-leaving standards. The consequences are expressed today in interventionist public policy in terms of a National Curriculum laid down for all school-ages (adopted ten years ago), together with more recent detailed syllabuses in the core subjects of language and mathematics embodied in the National Literacy and Numeracy Strategies for primary schools (adopted in the past two years). Much of the need for such reforms in Britain can be traced to worries as to whether teaching time was well spent, particularly in primary schools using ‘modern’ teaching methods which required children within each classroom to be divided into small groups, each group sitting around its own small table, many children not facing the wall-board (many classrooms even having their wall-board removed) so as to promote less ‘didactic’ teaching and more ‘discovery’ learning by pupils. The frequently ensuing difficulties of teachers in dividing their time effectively among those groups, the consequential frustration of those children who awaited the teacher's attention, the slower general pace of learning, and the particular disadvantages suffered by slower-developing children, need not be spelled out here; they have been closely examined in research involving timed classroom observation, such as the ‘Oracle’ project of Professor Maurice Galton and his colleagues.

World exports of manufactures have risen rapidly in the last decade—indeed faster than world manufacturing production (chart 1). There were checks in 1951–53 and in 1958; even so the yearly rate of rise since 1950 has been 9 per cent in value, 7 1/2 per cent in volume. The pattern of this trade has been changing, particularly in the last five years: markets have grown faster in the industrial countries than in the less developed parts of the world (chart 2). Since 1954, in value terms, the exports of manufactures to the United States and to OEEC countries have been rising at an average rate of 17 per cent and 10 per cent a year respectively; to Latin America and the sterling area, only 3 1/2 per cent and 4 1/2 per cent.

Under the Government's New Deal proposals to help create jobs for the young unemployed, employers are offered marginal employment subsidies. Such interventions involve relative changes in the firm's fixed and variable labour costs. In turn, cost changes have implications for both employment and hours of work. This study examines possible strengths and weaknesses of employment policies that are designed to price young unemployed into jobs by reducing related labour costs. It focuses on one such intervention, the major restructuring of employers' National Insurance Contributions (NICs) in the 1985 Budget. This is then linked to the New Deal measures.

There is a body of evidence that shows that early education improves cognitive and social development for children while they are still attending, but the longer-term impacts depend on the quality of early education. Much of this evidence in England relates to a period when attendance rates at early education were around 60 per cent. Since then, early education has expanded through the guarantee of free provision for three- and four-year-olds, such that attendance at early education is now almost universal. This paper uses data from the Millennium Cohort Study to consider whether, in an era of near universal provision, early education is still associated with detectable improvements in outcomes for children. The analysis focuses on attainment in Key Stage 1 assessments when children were aged seven and finds that the overall impact of early education on Key Stage 1 attainment is modest, but that the impact is generally greater for those children who experienced poverty when they entered early education.