The information which has become available since the May Review forecast has not altered our view in any significant respect. The latest earnings figures (for May) show an increase of 11½ per cent (new index) and 14 per cent (old index) so far in Stage III; these are consistent with our assumption of an outturn for the year of a rise of about 15 per cent. There has not yet been any change in the general tendency of unemployment, while the estimated current balance surplus in the second quarter of just over £200 million was quite close to our forecast (though month-to-month changes have continued to be highly erratic).

Industrial production in the first five months of this year showed a moderate increase, with output growing by about 1 per cent over the same period last year and by about 1 1/2 per cent over the average for 1977. The figures for May, however, seem erratically low with perhaps a failure to adjust fully for the changes in the timing of Bank Holidays this year. The underlying trend rate of growth may therefore be higher than the rates given above.

Our forecast of the total increase in output in the OECD area is about 3 1/2 per cent for both this year and next (table 1), with slightly higher rises in each case for industrial production. Since May we have become, marginally, more optimistic about 1978 but less optimistic about 1979.

Various kinds of incomes policies have been in operation in the UK over a substantial part of the post-war period, particularly since the mid-1960s. There is considerable uncertainty about the effects of incomes policy on the rate of change of wages, and in this paper we attempt to assess the effects of incomes policy using econometric equations of wage inflation.

This article examines the extent to which differentials have been influenced by successive periods of incomes policies. The reason for interest in this subject is that one of the major supposed disadvantages of incomes policies is that they ‘distort differentials’. However we rarely get an explanation either of what these differentials are or in what way they are distorted. In this article we use various statistics on wages and earnings and attempt to find out whether incomes policies have had any noticeable impact on differences in pay between groups of workers.

After the fall of the Conservative Government in February 1974, at the end of that period of incomes policy, the rise in average earnings in the UK went up to a figure of 30 per cent in the year to mid-1975. In the first stage of the incomes policy which followed, that figure was brought down to 14 per cent and in the second stage to 8 per cent. There can be no reasonable doubt that this deceleration was the consequence of the incomes policies adopted. None of the equations which have been put forward to represent the ‘normal’ movement of wage rates or earnings would have produced a deceleration of this kind. The third stage of incomes policy, now coming to an end, differed significantly from the first two. In the first two stages, the numerical limit set for earnings increases had the explicit backing of the General Council of the TUC. The third stage did not have this backing (although the General Council did support the twelve-month rule); it was left to the Government to try to hold the figure of a 10 per cent rise in average earnings, with a variety of ad hoc sanctions on employers who exceeded the figure, and with a number of exceptions for productivity agreements of varying degrees of genuineness. The resulting rise in average money earnings is likely to be of the order of 15 per cent.