Chapter I. The Short-Term Prospects for the Economy

In this Chapter we carry out our normal short-term forecasting exercise, that is we forecast the prospects up to two years ahead on ‘unchanged policy’ assumptions. Particularly important among these is what will happen to wage bargaining after the £6 pay limit. The short term outlook seems to us to hinge critically on how earnings will grow from autumn 1976 onwards: but we have no special means of foretelling the outcome of the discussions now proceeding between the Chancellor and the trade union leaders. The solution we have adopted is to assume a 6 per cent growth in earnings from autumn 1976. This is well below the present rate, but it is a conceivable figure, though opinions would differ as to how likely it is that such a low figure will be achieved. In view of the importance of the question we also show the prospects for the economy if the social contract deliberations should go seriously wrong, and for that purpose we have assumed 20 per cent earnings growth from autumn 1976.