- World trade and output have risen less rapidly since the middle of last year, as US growth has slowed. But world recovery continues, activity has quickened in most European countries and prices in domestic markets and in international trade remain subdued. Although differences in growth rates, inflation rates and real interest rates among the industrial countries have generally narrowed, the dollar continued to strengthen against most other major currencies until the end of February.
- In the United Kingdom, which will shortly complete its fourth year of recovery, output last year now appears to have been more buoyant than earlier statistics had suggested.
- Cost pressures, however, have been building up: with slower growth of productivity, the rise in unit labour costs accelerated sharply towards the end of 1984 and sterling's fall caused a rapid increase in the cost of imports even though world prices were weak.
- Depreciation of the exchange rate was until recently more than sufficient to maintain the competitiveness of UK manufacturers at home and abroad; but increases in costs have not so far been fully reflected in domestic selling prices.
- Bank lending to the private sector, especially to industrial and commercial companies, accelerated in the latter part of last year and personal sector debt and income gearing continued to rise.
- The March Budget provides for a £0.7 billion net fiscal stimulus in 1985/6 and target ranges for monetary growth lower than in 1984/5.
Published on
01 March 1985
Economic commentary