On this occasion we have adopted a rather different format for this chapter from the customary one. Part One begins with an analysis of some of the most important developments of the past few years, with notes on the deterioration in the balance of payments, on the fall in the savings ratio and on the acceleration of inflation. Next we discuss some of the problems associated with economic forecasting. We analyse the errors made last year and compare them with the error margins normally associated with short-term forecasts of this kind. We look at the behaviour of the economy at the corresponding stage of previous economic cycles. And we consider the best way of forecasting GDP when there are discrepancies between the measures of its growth in the past. Our central forecasts for 1989 and 1990 are described briefly in the text of Part Two, and more fully set out in the usual tables. We end in Part Three with a discussion of alternative scenarios for the medium term, with particular reference to their implications for interest rates and the exchange rate. An appendix describes the regional pattern of unemployment and the way it has changed since the early 1980s.

It is a great honour to be invited to deliver this lecture to mark the National Institute's Jubilee. The Treasury and the National institute have been neighbours since the Institute moved to Westminster during the war. We have benefited from the exchange of staff and ideas, and I am delighted that the present Director is a former colleague from the Treasury.

Robert Hall, whose Memorial Service took place earlier today, was one of those great men. He made a notable contribution to government over many years and followed that by equally distinguished guidance to the National Institute after he retired.

Problems arising in the US economy and financial system are frequently of global significance, and the inauguration of a new President provides a convenient occasion for taking stock of the US economy's recent performance and prospects. In this article we include some tonger-term background as well as an assessment of the current situation. The article is a sequel to one which we wrote nearly four years ago and which focused mainly on the remarkable recovery from recession achieved by the US economy in the period 1982-4.

The twin forces of investment in new and scrapping of old equipment are traditionally supposed to play a large part in explaining productivity growth. Scrapping cannot in practice be observed directly but can be inferred by estimating a vintage capital model. When this is done it is found that these forces do indeed have a substantial role to play in explaining differences between industries in productivity growth rates in the 1960s and 1970s, but not in the 1980s. The productivity improvement observed in most industries in the 1980s must therefore be ascribed largely to forces other than new investment and scrapping.

This article examines the numbers of skilled persons in engineering and allied occupations who qualify each year throughout the skill range—from an engineering doctorate to craftsmen and technicians—and compares Britain with other advanced industrial countries. The main quantitative difference between Britain and other countries lies in the numbers qualifying at the level of qualified craftsman; attention is also drawn to an important qualitative difference in practical content and length of university-degree courses in engineering.