The production of this forecast is supported by the Institute's Corporate Members: Bank of England, Barclays Bank plc, Consignia plc, Dixons plc, GlaxoSmithKline, 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 plc, Rio Tinto plc, Standard Chartered Bank, UBS Warburg, Unilever plc and Willis Corroon Group plc.

We have argued that the base rate should be reduced once again, as a precautionary measure. If the economic situation improves as our forecast suggests, then the reduction is likely to prove short-lived and we would expect it to be reversed in the Spring of next year. But this interest rate reduction would be a useful precautionary measure should the outlook for trade and investment continue to deteriorate. Ten-year interest rates have been rising from the low values in the first quarter of this year. The interest rate reduction we propose would be expected to give the yield curve its traditional upward slope; if rates are raised again the curve should then level off.

Prospects for the world economy now appear bleaker than they have for more than five years, with the growth of output and trade having begun to slow in all regions. GDP growth in the OECD area is expected to slow particularly strongly this year. During the emerging markets crises of 1997 and 1998 the downturn in the world economy was driven by events outside the major industrialised economies, and a combination of the automatic stabilisers of the market mechanism and the prompt action of the monetary authorities ensured that the phase of strong growth was not interrupted. The current conjuncture is different, in that the origins of the slowdown appear to be within the OECD region, and they are difficult to offset with policy and hard for market-based stabilisers to absorb. The slowdown in production, trade and investment in information technology related industries is at the core of the problems facing policy makers, and their tools are not well adapted for dealing with cycles driven by specific industries.

Over the past five years, there have been widespread claims — not only that there is a ‘new economy’ but that a new economy requires new economics. This article reviews the claims of this kind which have been made in three principal areas — in the measurement of economic statistics and in macroeconomic management, in company and stock market valuations, and in the nature of competitive advantage and the origins of business success. In each of these areas, it finds little basis for believing that revolutionary, rather than evolutionary, change is required. Indeed the application of well established economic principles and concepts might have saved investors, commentators, and those whose job it is to manage the economy, from costly mistakes

The British economy has performed well since the recession of the early 1990s. How much of this is due to the revolution in information and communications technology (ICT)? We find that the stock of computing equipment has grown at a similar rate to that seen in the US, but there appears to have been no similar ICT-induced pick-up in productivity growth. We suggest that any underlying improvement in productivity growth has been obscured by a slowdown in manufacturing and by the need for the unemployed to be absorbed into employment. We find no evidence yet of any clear effect of ICT on pricing and suggest that any benefit of greater competition is likely to come about by encouraging productivity growth rather than by reducing margins. We argue that the main cause of Britain's improved performance lies in the labour market. Looking forward, we are optimistic that the benefits of ICT will become more apparent as the factors that have obscured it become less important.

In 1989 the UK began a process of transferring an almost wholly state-owned electricity supply industry (ESI) into a collection of privately-owned generation, transmission and distribution utilities. Using data from 1960–97, this paper aims to evaluate how the performance of the UK ESI has changed over time and to compare the UK performance with France, Germany and the United States in order to assess the impact of the liberalisation process. The study takes a whole-industry approach, combining the four aspects of electricity production — generation, transmission, distribution and supply. The computation of labour and total factor productivity and the impact on consumer prices are used to shed light on how successful the various industry structures have been in raising performance.

Using annual observations on industrial production over the last three centuries, and on GDP over a 100-year period, we seek an historical perspective on the forecastability of these UK output measures. The series are dominated by strong upward trends, so we consider various specifications of this, including the local linear trend structural time-series model, which allows the level and slope of the trend to vary. Our results are not unduly sensitive to how the trend in the series is modelled: the average sizes of the forecast errors of all models, and the wide span of prediction intervals, attests to a great deal of uncertainty in the economic environment. It appears that, from an historical perspective, the postwar period has been relatively more forecastable.