Chapter IV. Problems of the Medium Term

In Chapter I we considered the prospects for the UK economy until end-1977 on the usual assumptions of ‘unchanged policies’, though with two alternative assumptions about the outcome of the wage-bargaining process for the 1976/77 wage calendar. We argued that with restraint in nominal wages in 1977 there was a prospect of a continued moderate recovery in UK economic activity though there were still serious problems outstanding by the end of 1977—high unemployment and a large current account deficit. We also argued that without restraint in nominal wages the chances of a sustained pick-up in activity looked poor and real growth would be slowing down sharply in the course of 1977. On this latter assumption, medium-term issues barely arise since the UK would be once again plunged into a short-term crisis. In this Chapter, we address the central medium-term issue of what sort of recovery paths could reasonably be expected for the UK economy over the next five years and what implications these prospects have for policy.