Chapter I. The Home Economy

The picture of the development of the economy which we present here differs substantially from that which we gave three months ago. This is for two reasons. In the first place, in August, at the time we were writing: ‘The recovery in UK output is clearly under way, against a background of a world recovery more rapid than we previously anticipated’, in fact output had stopped rising. GDP in the second quarter actually fell and our present estimate for the third quarter is now no higher than for the first. Whereas in August we thought that GDP growth through 1976, i.e. from the fourth quarter of 1975 to the fourth quarter of 1976, would be 4.8 per cent, we now have a figure of only 2.3 per cent. This pause in recovery has not been confined to Britain: it has happened in many industrial countries, including the United States, Germany and Japan. The question is whether the recovery will resume after the pause, or will be aborted. We are in fact assuming for the world economy a resumption of growth though at a somewhat slower rate than we forecast before for 1977.