The following are the main points:
- Although the worst of the fall in output may be over, there are few signs of any sustained recovery.
- Demand is generally weak. Destocking continues and industrial investment is declining. Consumer spending-which rose in the first quarter-will probably not be sustained unless savings are run down.
- The increase in earnings-about 10% per year-is now no faster than overseas. With signs of some improvement in productivity, and the recent decline in the effective exchange rate, some of the very large deterioration in competitiveness may be recovered.
- Partly because of the fall in sterling, prices may continue to rise faster than in the second half of 1980.
- In real terms, company profitability was the lowest ever recorded in the last three months of 1980. But severe pruning of stocks and capital investment have led to some improvement in companies' financial position.
- In the first quarter, the probable large surplus on current account was matched by the largest net capital outflow ever recorded, with little change on balance in the effective exchange rate.
- Real interest rates have risen sharply abroad-in the United States in the pursuit of monetary control, elsewhere partly in response to exchange rate pressures; the United Kingdom stands in sharp contrast, and by international standards is no longer a high interest rate country. These developments have probably contributed to the recent fall in sterling.
- The underlying growth of sterling M3 seems to be within the target range, but the picture is confused by the Civil Service pay dispute. Lending to the private sector (and, in particular, to persons) appears to be growing more rapidly.