This review describes the course of the economy and the main features of the monetary situation this year.
- Manufacturing output rose in the third quarter; the slight increase in total output was the first for eighteen months.
- The impetus came from the behaviour of stocks, where the reduction seems to have been much less than in previous quarters. Otherwise, domestic demand remained weak.
- Imports grew much faster than exports: import penetration increased and, on any but a short comparison, the UK share in export markets has fallen. In both cases the deterioration probably reflects the earlier erosion of competitiveness.
- This year, productivity in manufacturing has increased substantially; unit labour costs have been fairly stable; and, helped by the decline in the exchange rate, competitiveness has improved.
- Higher fuel and materials prices have been an unwelcome effect of the decline in the exchange rate. Despite the restraining influence of labour costs, inflation has quickened somewhat. Most pay awards in the wage round so far have been moderate.
- The run-down of stocks and the delay in tax payments during the Civil Service dispute improved the financial position of companies in the first half-year. But these effects were temporary: companies' liquidity position could now be worsening.
- Though government borrowing was increased by the interruption to tax payments, this effect is now being reversed. The underlying pressure for monetary expansion is coming from bank lending to the private sector.
Economic commentary