The forecast ‘on unchanged policies’ is not a forecast of what is likely to happen, since unemployment in the winter of 1968 would probably reach a recorded figure of 650-700 thousand, with still a strong underlying upward trend. The Government, even if it has accepted the idea of running the economy with a higher level of unemployment—say 2 1/4-2½ per cent— will need to intervene, and probably need to intervene fairly soon (page 30) if the figure is to level off within these margins.

Since the onset of the Federal Reserve's unconventional programme of large-scale asset purchases, known as quantitative easing (QE), some economists and financial practitioners have feared that the consequent buildup of the Fed's balance sheet could lead to a large expansion of the money supply, and that such an increase could cause a sharp rise in inflation. So far fears about induced inflation have not been validated. This article examines the basis for the original concerns about inflation in terms of the classic quantity theory of money, which holds that inflation occurs when the money supply expands more rapidly than warranted by increases in real production. The article first reviews the US experience and shows that whereas rapid money growth might have been a plausible explanation of inflation in the 1960s through the early 1980s, subsequent data have not supported such an explanation. It then shows that the quantity theory of money has not really been put to the test after the Great Recession, because a sharp increase in banks’ excess reserves and corresponding sharp decline in the ‘money multiplier’ has meant that the rise in the Federal Reserve's balance sheet has not translated into increased money available to the public in the usual fashion. The most likely aftermath of quantitative easing remains one of benign price behaviour. However, if nascent inflationary conditions materialise, the Federal Reserve will need to manage adroitly the large amounts of banks’ excess reserves that have accumulated as a consequence of QE in order to limit inflationary pressures.

In February and August each year the National Institute publishes forecasts of growth in output for 24 separate industrial sectors which together comprise the index of industrial production. The forecasts are based mainly, though not entirely, upon macro-forecasts prepared by the Institute on the usual basis of assuming no change in government policies. This article contains a description and some tests of the econometric procedure used to derive the industrial forecasts from those yielded by the macro model. It must be emphasised, however, that the econometric procedure used to prepare the industrial forecasts represents only the first stage of a two-part method which yields the forecasts finally published in the Industrial Production chapter of the National Institute Economic Review. Although based upon the econometric forecasts, the final predictions incorporate adjustments made at the second stage of the procedure when up-to-date information on capacity constraints, strikes, tariffs and other factors is taken into account. In addition, adjustments may be necessary in the actual forecasting situation to ensure that the sum of the component forecasts adds up to the aggregate industrial production forecast (see page 61).

More recent information confirms the view which we expressed in August that the rapid economic expansion had begun to slow down in the industrial countries by the middle of the year. It now looks indeed as though the change of pace will prove to be rather sharper than we then foresaw. We still expect the rise in OECD countries' aggregate output to be nearly 7 per cent this year, but it may fall to 4-4½ per cent in 1974 (or even less if production is significantly affected by shortage of oil).

The background to the White Paper proposals for changes in the organisation of skilled training, published in December 1981, is to be found six months earlier in a detailed Review by the Manpower Services Commission (MSC) of the workings of the Employment and Training Act of 1973. That Review concluded that ‘current training arrangements have made little advance in securing fundamental reforms of training’ (paragraph 4.34), and that ‘in general, in the traditional crafts, it is still the passage of time rather than objectively assessed performance standards, which decides whether a trainee is accepted as skilled’ (paragraph 4.16).

Over the past 15 years, manufactures have been the fastest-growing sector of Britain's import trade. In 1969, the dollar value of total retained imports was 75 per cent higher than the 1955 figure but the dollar value of imports of manufactures was more than 260 per cent greater than in 1955. The latter rise owed little to higher prices; there was a more than threefold increase in volume. Thus manufactures which had in 1955 supplied just under 23 per cent of retained imports accounted for 43 per cent in 1969.

Between 2000 and 2003 OPEC maintained a target range for the price of oil of US$22–28 per barrel. In early September of this year the price of oil reached US$67 per barrel. Such a rapid change in the price of oil was not anticipated either by economic forecasters or by those involved in the industry. Indeed, about a year ago, with the price of oil just over US$40 per barrel, a senior oil company executive, said that the high prices were caused by short-term factors and that prices had reached their peak. As the rise of oil prices has continued, people's thoughts have inevitably turned to the two oil crises of 1973–4 and 1979–80.

GDP growth in 2006 is estimated to have been 2.8 per cent per annum. This rate of growth is above our estimates of the trend rate of growth in the UK. On a quarterly basis the latest estimates suggest that growth above the trend rate occurred in the first half of 2006, with both quarters' growth rates at 0.8 per cent (see figure 1). The second half of the year saw quarterly growth rates at around the trend rate of 0.6 to 0.7 per cent. NIESR's estimate of monthly GDP implied that quarterly growth in the first quarter of this year was somewhat lower at 0.5 per cent because of a weak January. After this poor quarterly performance we expect an increase in economic growth due to household and government demand. Overall, this suggests a downward revision to our January forecast of 0.1 percentage points, although this is of little economic importance. We continue to expect the economy to moderate over the next three years. Our forecast is for GDP to grow by 2.7 per cent per annum this year, slowing to 2.6 and 2.4 per cent per annum in 2008 and 2009 respectively.

The US current account deficit was around 6½ per cent of GDP in 2006, having risen by 2 per cent of GDP since 2002 when the dollar reached its peak and started to decline. Between the peak in 2002 and the last quarter of 2006 the dollar fell by 13.4 per cent in effective terms using 2003 trade weights, and it might have been expected that the current account would have improved. However, over the same period the household savings rate fell by more than 4 per cent of personal incomes and private sector investment rose by 0.6 per cent of GDP. At the same time, the public sector deficit improved by around 1 per cent of GDP, but this was not enough to offset the major decline in net savings in the private sector. These domestic imbalances have been partly responsible for the deterioration in the current account, and appear to have more than offset the impacts of the decline in the dollar. In addition, since 2002 the oil price has risen and this has led to a significant deterioration in the US current account.

Price inflation in the UK economy has remained below the expectations of most commentators since sterling left the exchange-rate mechanism in September 1992. Latest estimates of inflation indicate that retail prices are now growing at an annual underlying rate of 2 per cent; the lowest growth rate for 27 years. This impressive performance is being sustained by very low growth in labour and capital costs, unit labour costs are estimated to have fallen by 1/2 per cent in the last year, as fast productivity growth has been combined with low growth in earnings.

This note, by Mrs. K. Jones, is one chapter of a study on ‘Some Economic Aspects of Immigration’, which is being undertaken at the Institute. Research is still in progress on other aspects, such as employment, earnings, expenditure, savings and remittances, housing and capital requirements. It is hoped to publish the results as an Occasional Paper by the end of 1968.

The focus of interest of macroeconomic policy has been moving away from the short term towards the medium term. Partly this is because the present recession, already deeper than any experienced since the war, seems still to have some way to go, and the question is hotly debated when, and how strongly, a recovery may be expected to come. But, with the new government, there has also been a significant shift in the attitude towards management of the economy. The government's objectives for the medium term, enunciated in the Financial Statement and Budget Report 1980-81, are ‘to bring down the rate of inflation and to create conditions for a sustainable growth of output and employment’. This reduction in the rate of inflation is to be brought about by a ‘Medium-Term Financial Strategy’ which is based on the idea that the role of government should be to announce, and subsequently adhere to, a sequence of declining targets for £M3 and the PSBR.

This article analyses the role of technical progress in three models of the UK economy. In the standard neoclassical growth model, the growth of the economy is dictated by the growth rate of technical progress plus that of the population. Our two simulation experiments, increasing the level of technical progress by 1 per cent and the growth rate by 0.1 percentage points, suggest that technological progress plays the same role in these large macroeconometric models. In both cases the result is higher output and real wages. However adjustment following the shocks is protracted, giving substantial technological unemployment which in several instances is permanent.

In 1965, the National Institute published ‘The British Economy in 1975’, by W. Beckerman and associates. This article summarises the results of a post-mortem on the book which was carried out at the Institute, together with a general discussion of approaches to medium-term projections

Since 1998, fiscal policy in the UK has been guided by two rules: the golden rule to borrow over the economic cycle only to invest, such that the average annual surplus on the public sector current budget as a share of GDP is greater or equal to zero; and the sustainable investment rule that public sector net debt should not exceed 40 per cent of GDP over the economic cycle.

There are now widespread fears that the slowdown in the rate of growth of the UK economy might worsen and turn into another recession, Those holding this view can point to a variety of evidence to support their claim. In particular, retail sales in September were 0.4 per cent lower then a year earlier, house prices were 1.8 per cent lower than a year earlier, manufacturing output, which had grown by over 4 per cent in 1994, was only 0.6 per cent higher in September than it had been a year earlier. In addition, they can emphasise that stockbuilding cannot be expected to make the same positive contribution to output growth that it has made over the past year and is likely to make a negative contribution when excessive stocks are run down. They can also argue that any reduction in public spending relative to existing plans, to make way for reductions in taxation, will tend to reduce aggregate demand since cuts in spending have a larger effect on demand than equivalent cuts in taxation because the latter affect saving as well as spending.

For the past four years estimates of home and foreign orders have been published which, by and large, cover the capital goods sector of the engineering industry. (This is the sector which produces to order.) Home deliveries from this sector make up a large part of industry's investment in plant and machinery; export deliveries have usually been more buoyant than total exports. If these orders figures could be used to predict turning-points in home and export deliveries of engineering products, this would be a helpful additional forecasting tool.