The production of this forecast is supported by the Institute's Corporate Members: Bank of England, Barclays Bank plc, Glaxo Wellcome plc, 3i plc, INVESCO Europe Ltd, Marks and Spencer plc, Morgan Stanley Dean Witter (Europe) Ltd, Morley Fund Management, The National Grid Company plc, Nomura Research Institute Europe Ltd, Pearson Management Services Ltd, The Post Office, Rio Tinto plc, Standard Chartered Bank, UBS Warburg, Unilever plc and Willis Corroon Group plc.

Although we are now into the new year, figures for the final quarter of 2000 are generally estimated in the forecast. Third quarter real GDP growth in 2000 was 0.7 per cent, down from 1 per cent the previous quarter with fourth quarter growth of 0.3 per cent reported after the forecast was completed. Overall this yields an estimate for growth for 2000 as a whole of about 3 per cent. Much of the fourth quarter has been affected by the continued disruption to the railway network coupled with depressed output in the oil and gas industry, something we comment on further below. However, as seasonally adjusted retail sales growth for the fourth quarter was 1.3 per cent, following on from a revised 1.2 per cent growth the previous quarter, the picture is not uniformly weak. It remains to be seen exactly how much the small fourth quarter growth rate is due to special factors. Growth of almost 3 per cent in 2001 is forecast, followed by 3¼ per cent in 2002, with the growth rate falling back towards its trend value of 2½ per cent after this.

World economic activity is estimated to have risen by 4¾ per cent in 2000, the fastest rate for more than a decade. Growth accelerated in all the major geographical areas last year, with GDP rising by an estimated 4.2 per cent in the OECD economies and activity recovering strongly in many developing countries in Asia, Latin America and Eastern Europe. World trade was exceptionally buoyant, with merchandise trade volumes rising by an estimated 13 per cent. However there is now clear evidence that the growth of the global economy has passed its peak.

Given the long and variable time lags between interest rate changes and responses in output and inflation, an inflation forecast must lie at the heart of monetary policy. In the UK the Bank's inflation forecast and Report were developed when the interest rate decision still lay with the Chancellor. Its, largely unchanged, continuation has led to certain tensions once that decision was delegated to a Monetary Policy Committee of independently responsible experts. In this paper the question is raised whether such a Committee should be jointly and individually responsible for the inflation forecast, and what might be considered as alternative procedures.

This paper examines two ways in which competition works in modern capitalist economies to improve productivity. The first is through incentives: encouraging improvements in technology, organisation and effort on the part of existing establishments and firms. The second is through selection: replacing less-productive with more productive establishments and firms, whether smoothly via the transfer of market shares from less to more productive firms, or roughly through the exit of some firms and the entry of others. We report evidence from the UK suggesting that selection is responsible for a large proportion of aggregate productivity growth in manufacturing, and that much of this is due in turn to selection between plants belonging to multi-plant firms. We also investigate whether the nature of the selection process varies across the business cycle and report evidence suggesting that it is less effective in booms and recessions. Finally, although in principle productivity catch-up by low-income countries ought to be easier than innovation at the frontier, in the absence of a well functioning competitive infrastructure (a predicament that characterises many poor countries), selection may be associated with much more turbulence and a lower rate of productivity growth than in relatively prosperous societies. We report results of a survey of firms in transition economies suggesting that, particularly in the former Soviet states (excluding the Baltic states), poor output and productivity performance has not been due to an unwillingness on the part of firms to change and adapt. On the contrary, there has been a great deal of restructuring, much new entry and large reallocations of output between firms; but such activity has been much more weakly associated with improved performance than we would expect in established market economies.

The right of European citizens to work in other member states has been in place for many years, yet levels of movement have been lower than expected. Employers play a central role in facilitating mobility, by recruiting across national boundaries and transferring staff. Their practices are therefore likely to have a considerable impact on the extent of movement, and on the type of employees involved. This article explores the practices of employers in the chemicals industry, a key sector of the European economy. The focus of the research, which was commissioned by the European Centre for the Development of Vocational Training (CEDEFOP), was on the recruitment and transfer practices of employers, and their treatment of ‘foreign’ qualifications. The article identifies the range of approaches found in the industry and presents some of the main issues to employers in relation to recruitment and transfer across member states.

This article argues that an effective way to analyse the macroeconomic effects of business-to-business electronic commerce is to regard it as a decline in the cost of information to producers. Calculations based on input-output tables and the IMF's Multimod macroeconomic model show that current estimates of such savings translate into about a 5 per cent long-run increase in output in the major industrialised economies. In the medium term, although the deflationary effects of the shock would provide greater room to central banks to keep interest rates low, the simulation results also hint at short-term inflation risks if current demand outstrips supply in anticipation of higher future incomes.