- Output growth in the six major overseas economies was strong in the third quarter. The momentum continued into the fourth quarter in the United States and Japan, but not in Germany.
- Inflationary concerns continue to stem partly from the pace of economic expansion, which is above the rate thought consistent with non-inflationary growth in several countries. The recent recovery in commodity prices has added to these worries.
- Little progress has been made recently in the reduction of external imbalances.
- Economic activity in the United Kingdom remained strong in the third quarter, though problems with the most recent statistics make it hard to gauge the strength of domestic demand. In the first three quarters of 1988, domestic demand grew faster than output, which itself was growing at an unsustainably rapid rate. Consumer spending grew more slowly in the fourth quarter.
- Clear signs have now emerged of a slowdown in turnover in the housing market in several regions. Prices have stabilised in some areas and mortgage lending has fallen since the summer.
- Inflation has continued to increase in recent months. Much of the rise has stemmed from higher mortgage rates, but profit margins and unit wage costs are still significant influences on the underlying rate of price increases. Concerns about the continued momentum of domestic demand, and its potential inflationary consequences, led the authorities to signal a further rise in base rates-to 13%-on 25 November.
- The strength of domestic demand has continued to be reflected in the growth of imports and the current account deficit. There are tentative indications that the current account deficit may be stabilising.
Published on
01 March 1989
Economic commentary