- World financial markets have been more stable so far this year than in the turbulent months in late 1987. From historic lows against the yen and the deutschemark at the start of January the dollar rebounded somewhat on co-ordinated intervention. Share prices in many countries rose, though not, except in Japan, back to their October levels.
- The resilience of economic activity in the face of the earlier fall in share prices was confirmed by the strong rise in output in the major overseas countries towards the end of 1987. The latest data suggest that some of this strength continued into the early months of this year, and was not associated with higher inflation.
- However, some tensions began to resurface, with the dollar weakening on fears that the US economy was growing too strongly for inflation to remain low or the trade deficit to narrow significantly. In addition US bond yields rose, and share prices fell back.
- In the United Kingdom there have been some signs of slower growth so far this year. The evidence has been conflicting but on balance suggests no greater slowdown than previously expected.
- Although UK earnings have tended to rise faster, with productivity growth high, unit labour cost increases have remained low. Profit margins and profitability rose in 1987 despite the strengthening exchange rate.
- Sterling's appreciation has made for a loss of competitiveness, which may now be affecting trade flows, although the latest statistics appear distorted. It has also made for very weak import prices .
Published on
01 June 1988
Economic commentary