Chapter I. The Home Economy

Since our last forecast, in May, the uncertainty which we then stressed about the future of incomes policy has been resolved, though uncertainty about the actual future course of wage inflation itself has, with the abandoning of any attempt at a formal policy, if anything increased. In the May Review we attempted to deal with this uncertainty by exploring the broad implications of ‘low’ and ‘high’ earnings assumptions for the period from mid-1977 onwards, in addition to presenting a more fully worked-out forecast based on the assumption of a 15 per cent annual rate of increase. Although the uncertainty has in no way lessened—at any rate at the upper bound—we do not think it worthwhile to rehearse on this occasion the consequences of an unfettered pay explosion from now on. But although we present below a single forecast based on our assessment of the most likely outcome, this should not be taken to mean that we are now any more confident about the likely future pace of wage inflation. Our assumption is discussed in detail in the next section.