The main statistical propositions about the British economy in 1966—on the movement of output, employment, the balance of payments and prices—are these. National output fell through the year. It is difficult to disentangle its exact course in the two middle quarters because of the seamen's strike. By the last quarter national output had probably fallen something like 1½ per cent from its level in the first quarter, so that in the year 1966 as a whole it was about 1 per cent higher than in 1965. Unemployment was slow to start rising : it did not turn up until May. Thereafter it went up sharply, reaching 1.9 per cent (wholly unemployed, seasonally adjusted) in December. The balance of payments trade deficit, which in 1965 was about half that of 1964, roughly halved again in 1966 : but there was still a deficit—taking current and long-term capital items together— probably of the order of £150 million. So by the end of 1966 the accumulated current and long-term capital deficit for the three years 1964-66 totalled some £1,130 million. Retail prices during the year rose 3.8 per cent; tax changes accounted for about 1½ per cent of this, and in the second half of the year, from June to December, the rise was only 0.7 per cent if tax changes and seasonal fuel and food price changes are excluded. Hourly wage-rates, which in the year to July 1966 had risen 6½ per cent, thereafter levelled off completely. The wholesale price index for manufactured goods was also only fractionally higher in December than in July, and the export price index also levelled off (although here the change-round in non-ferrous metal prices explains some of the flattening) (chart 1).

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.

This chapter provides some detailed background material on the various categories of expenditure and on the balance of payments.

In February 1966, the industrial production forecast was based on ‘present policies’; it then appeared that national output might rise 2 1/4 per cent in 1966, and the forecast for industrial production was for an increase of 2 1/3 per cent. The deflationary policies in July reduced the year-on-year rise in national output to 1 per cent, and the rise in industrial production to ½ per cent.

Growth in industrial countries as a whole again amounted to nearly 5 per cent in 1966 (table 47) but the rate slowed down during the summer after moving ahead quite sharply in the first half of the year (table 34).

Industrial production was more or less static in North America after August, and in Europe production has actually fallen slightly, reflecting the declines in Germany and the United Kingdom as well as in some of the smaller countries. The relatively favourable overall result in 1966 arose largely from the diversity of phasing as between different countries. France, Italy and Japan had found it necessary some two years ago to adopt the type of anti-inflationary restrictive policies now being applied in most other industrial countries. They therefore now have reserves of unused labour and capacity which enable them to expand without the inhibitions about wage and price inflation which are afflicting the other main industrial countries.