The domestic economy

• The recession at home continued in the second half of last year with output in most major industrial sectors continuing to decline.
• But domestic demand may have stabilised and is likely to have remained broadly flat in the first three months of this year.
• Consumer confidence has grown in recent months, having weakened throughout the autumn. But the housing market has shown few signs of a pick-up. An apparent increase in enquiries has as yet had little positive effect on housing turnover.
• The commercial property market has been depressed, with implications for the bad debt provisions of the banking sector.
• Corporate demand for bank finance has been subdued, reflecting a reduced level of capital spending and continued balance sheet restructuring. But survey evidence points to a sharp improvement in business optimism back to levels seen last autumn.
• Competitive pressures on the corporate sector have led to a significant shake-out of labour, particularly within parts of the service sector, and to a continued squeeze on pay settlements.
• Continued progress has been made in subduing inflation. The United Kingdom, nevertheless, still has some way to go to match the best EC performance.

The domestic economy