Economic growth in the industrial countries has fallen further in recent months, except in the United States.
In the United Kingdom, exports have increased rapidly, but so have imports and, with depressed domestic demand, output has recently been falling. Inflation, after accelerating during the latter part of 1976 and early 1977, is easing: unit labour costs have been rising more slowly, the exchange rate has been stable for some time and world commodity prices have been falling. Average earnings rose broadly in line with the rate envisaged during stage two of the pay restraint policy, but less than prices; real personal disposable income fell by 3½% in the year to the second quarter. Consumer spending, however, fell less.
Both monetary and fiscal policy have remained cautious, and the various fiscal changes brought in during the summer are expected to have much the same effect as the original Budget proposals. Although the current account is improved - because of increasing domestic production of oil and the continuing recession - the overriding determination to bring down the rate of inflation has allowed no easing of policy. The improvement in the current account, together with the firm stance of monetary policy, has led to upward pressure on the pound. The authorities' aim has been to maintain stability in the exchange rate, taking the opportunity to rebuild the much-depleted reserves. Towards the end of July, however, the continuing weakness of the dollar led the authorities to switch the focus of their attention to the effective rate, and to allow sterling to appreciate a little. Policies for the exchange rate and for the growth of the money stock can on occasion be difficult to reconcile; but, despite the improvement in the balance of payments, the rate of increase of the money stock (sterling M3) has in fact remained without difficulty within the target range of 9%- 13% .
The concluding assessment on page 296 discusses the broad prospects for the economy over the next twelve to eighteen months.