Chapter I. The Economy in 1978

The overall pattern of changes in real expenditure and output was markedly different in 1978 from that of 1977 (see chart 1). In 1977, largely because of the undertakings given in the Letter of Intent to the IMF of December 1976, fiscal policy was deliberately restrictive. The stance of fiscal policy was made harsher still by the public expenditure shortfall produced by the operation of the relatively unfamiliar cash limits. There was a fairly small fall in public authorities' current spending and much larger falls in capital expenditures. Private consumption, too, fell as stages II and III of the pay policy operated. Trade to 6 per cent of the labour force. Retail price inflation did, however, fall fractionally from 16.5 per cent in 1976 to 15.9 per cent in 1977 (and to 13 per cent through the year).