The domestic economy

Published on 01 March 1992

The expected recovery is providing elusive. Conditions abroad - both real and financial - have turned out less favourably than expected, while confidence at home, particularly among consumers, has weakened.
The CSO's composite leading indicators continue to rise, suggesting that the condition that in the past have accompanied recovery are in place.
Real incomes and consumption remain essentially flat. The letter may still be adjusting to the past excesses of a debt-financed consumption boom. Over a longer perspective, consumption growth has averaged 3½% per annum since 1985, compered with an average of about 2½% per annum over the previous 30 years.
Compare profitability and financial adjustment seem to have been sustained and manufacturers appear to be intending to increase investment slightly in 1992.
The recession has considerably narrowed regional disparities in unemployment and house prices. This may assist labour mobility and hence the balance and durability of the recovery when it comes.
In manufacturing, progress has been maintained in reducing the growth of unit costs, and output price inflation continues to fall. Outside the traded goods sector, where the ERM discipline does not so directly impinge, reductions in inflation have been much more sluggish and this has slowed the underlying fall in retail price inflation.
Monetary growth is subdued, as lenders and borrowers adopt a more cautious approach in the light of rising bad debt experiences.