Economic commentary

Quarterly Bulletin 1986 Q1
Published on 01 March 1986
  • The growth of output in the major industrial countries strengthened, and inflation fell, in the second half of last year.
  • The sharp fall in oil prices will improve the prospects for maintaining the growth of output and lowering inflation in industrial countries.
  • The dollar weakened during the first quarter of 1986; there was downward pressure on interest rates accompanied by cuts in official rates in most major centres in March. Yields on long-term bonds also fell, reflecting an improvement in inflation expectations.
  • The UK economy continued to grow during 1985, and GDP(A), adjusted for the miners' dispute, was 2½% higher than in 1984. But growth slowed in the second half of the year.
  • The annual increase of retail prices fell to around 5% in early 1986, reflecting lower commodity prices and the appreciation of sterling during much of 1985.
  • The rate of growth of earnings in manufacturing remains well in excess of inflation, and, although growth of productivity was maintained, unit labour costs rose faster than those of competitors.
  • Although real interest rates remained strongly positive during 1985, they app eared to have little marked effect on the growth of credit; both consumer credit and mortgage lending strengthened in the second half.
  • The March Budget provides for a net tax reduction of £1 billion in 1986/87; the target for £M3 is reinstated and the PSBR is projected to fall to 1¾% of GDP in 1986/87.

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