- The growth of output among the major overseas industrial countries weakened in the fourth quarter. Bank forecasts of GNP growth in 1987 for these countries have been revised down to 2½%.
- Trade volumes are responding to the changes in competitiveness resulting from the fall in the dollar. But current account imbalances have tended to widen, and trade frictions have increased.
- Six of the major industrial countries agreed in Paris in February that a period of greater exchange rate stability was desirable. Since then, however, the dollar has weakened further.
- Consumer price inflation among the major six overseas countries was 2% in 1986, and may now be stabilising. However, in the United States the fall in the dollar has resulted in some increase in the rate of inflation, accompanied by higher interest rates.
- In the United Kingdom, growth was buoyant in the fourth quarter, especially in the manufacturing sector. The growth of output has been associated with a strong cyclical rise in manufacturing productivity. The rise in unit wage costs slowed to 2% in the year to the fourth quarter, a rate much closer to that of our major competitors.
- Non-oil trade volumes have responded to the improvement in competitiveness which resulted from the fall in sterling last year, and the visible trade deficit narrowed in the first quarter.
- The PSBR was only £3.3 billion in 1986/87, less than 1% of GDP, reflecting the strength of non-oil tax receipts. In the Budget, the Chancellor lowered the earlier PSBR projection for 1987/88 to £4 billion and cut the basic rate of income tax. Since early March bank base rates have been lowered in four stages from 11% to 9%.
Published on
01 June 1987
Economic commentary