- The major overseas economies continued to grow strongly in the first quarter although there are tentative signs of a slowing in some countries more recently. Inflation rates remain generally subdued but domestic pressures may be a little stronger in the United States and, to a lesser extent, Japan as a result of the strength of activity. The rise in non-oil commodity prices, however, will have potential inflationary implications for all industrial countries. Several countries have tightened their monetary stance in response to higher inflation expectations.
- External imbalances in the three largest economies have tended to decline since the start of the year in dollar terms and relative to GNP. The higher interest differential between the United States and the rest of the world, as well as the fall in the US trade deficit, has contributed to the strength of the dollar since June.
- Growth in the United Kingdom slowed a little in the first quarter. Recorded output has behaved erratically in recent months, making it difficult to discern the trend. There is little firm evidence, however, that demand has slowed significantly and it continues to outpace domestic production, it being too early yet for the recent tightening of monetary policy to have a major effect.
- The prospects for inflation in the United Kingdom have worsened. Higher commodity prices have begun to feed through into input prices (though not yet into retail prices) while pressures in the labour market continue to be reflected in earnings and labour costs. House prices, meanwhile, continue to accelerate, with the rate of increase in several regions now outpacing that in London.
- The faster growth of demand than output, together with the loss of competitiveness last year and this, has been reflected in the very rapid deterioration in the current account deficit in the first half of the year.
Published on
01 September 1988
Economic commentary