In spite of the November Budget, output has risen quite strongly since the autumn. The economy is now working at about full capacity—in the sense that unemployment is now as low as it was at the lowest point of the previous cycle (in the spring of 1961).

In our view, the April Budget, together with the credit restrictions, will slow down the rise in output from now on, but will not by any means bring it to a halt. Our forecast of the movement of real domestic product shows it as rising at an annual rate of around 2½ per cent a year from the first quarter of 1965 to the second quarter of 1966 (table 1).

There was an increase of some 5 per cent in the real output of industrial countries between 1963 and 1964, but as far as Europe was concerned, much of the increase occurred during the second half of 1963. The actual increase during the year was only about 4 per cent (chart 7).

Industrial production in the United States and Japan increased rapidly throughout the year, though at a somewhat declining rate. In Europe the pattern was more varied. Expansion was strong and accelerating in West Germany, but the rapid rise of the second half of 1963 was followed by stagnation in France and the United Kingdom and by an actual decline in Italy. Italian production began to recover towards the end of the year.

In this country, when Governments change tax-rates, their main purpose is usually to alter the general level of demand. They clearly need to know, as best they can, how much effect on demand various types of tax change will have. Further, outside the Government, any short-term forecast of the economy also needs to make some estimate of the consequences of tax changes.

Paper and board are typical intermediate products. Very little goes directly into personal or public consumption; the vast bulk goes to other industries—and to a wide range of industries at that. Of the 51 industry groups distinguished in the 1954 Input-Output Tables, only two (agriculture and oil refining) are shown as having no direct purchases of paper and board. Consequently any projection of future demand is a complex exercise.