This chapter considers the prospects for the British economy over the next five years. The intention is not to put forward an unqualified set of numbers as a forecast with a strong probability; to do so would be to pretend to a knowledge of the future—of political and world events as well as economic developments—which we could not possibly possess. Our more modest aim is to present a conditional projection, based on ‘unchanged policies’, as a frame of reference for appraising the scale of future problems and the use of economic policies to combat them.

After four successive years of declining rates of economic growth in OECD countries, a fifth in 1981 now seems quite likely. The ‘second oil shock’ of 1979 must take much of the blame for the particularly slow growth this year and last. But in the year in which it occurred any depressive effect may well have been quite small, as it seems to have encouraged stock accumulation in anticipation of more rapid increases in price levels generally. And even before 1979 output had been rising much more slowly than in the years preceding the first ‘shock’ of 1973-4.

‘All the world has much to learn from German methods of education’, said Alfred Marshall some sixty years ago; as many others have also recognised, this is particularly true of vocational education. Until very recently however it has not been possible to make any comprehensive comparisons of the labour force—to assess the proportions of workers in various industries who have qualified at specified levels, and the proportions who have remained unqualified. Statistical comparisons of qualifications of the labour force hitherto have generally been confined to the narrow stratum of those in the uppermost educational echelons (those with university degrees or their equivalent); where more basic skills have been considered, comparisons have been limited to enrolments for selected broad groups of vocational courses. Very little has been available on the stock who have reached tested levels of proficiency.

If an exporter or importer uses a foreign currency, his income or costs will be immediately affected when the exchange rate changes; if he uses his own, there will be no effect on contracts that are already fixed. Analysing the pattern of invoicing throws light on what objectives are important in firms' decisions, and in particular on their attitudes toward foreign exchange risk. At the aggregate level, their choice of currency influences the effect of an exchange rate change on a country's balance of trade.