General assessment

Quarterly Bulletin 1989 Q2
Published on 01 June 1989

Activity in the major economies has continued to exceed expectations as the effects of a general tightening of monetary policy last year take time to work through. In the meantime inflationary pressures have intensified, leading to further rises in interest rates in the United States and Eurape this year. Oil prices have risen sharply, while other commodities are only a little off their peak. This Assessment considers these developments, proposals for the next steps in handling ldc debt and the United Kingdom's domestic situation. The picture of the UK economy in 1988 is now clearer, with better-identified demand components and a more plausible profile for savings. Labour costs are, however, now rising more rapidly. Together with uncertainty about the precise effects of earlier policy steps, the picture of strengthened demand and higher cost inflation warranted a cautious Budget. Monetary policy also has to remain restrictive.

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