Chapter I. The Economy in 1977

British economic policy in 1977 was conducted for the most part within the confines of the undertakings given to the IMF in the Letter of Intent of December 1976. Partly as a result, output stagnated almost completely and unemployment rose slowly and erratically by a further 100 thousand during the year. The operation of Stage II of the pay policy during the first half of the year and the almost universal acceptance of the 10 per cent settlements guideline during the second half meant that the wage and salary bill was just under 10 per cent higher in 1977 than in 1976, compared with an increase of over 13 per cent in the previous year. Import prices rose by 16 per cent year-on-year (partly because of the sharp effective depreciation of sterling in late 1976) but the rate of consumer price inflation slowed a little, from 15 1/2 per cent during 1976 (that is, between the final quarters of 1975 and 1976) to just over 14 per cent last year. Despite the virtual stagnation of home demand, the depreciation of sterling (the effective rate was 5 per cent lower on average in 1977 than in 1976) and the net increase in the North Sea oil benefit from about £0.5 billion in 1976 to over £2 billion in 1977, the current account of the balance of payments reached only bare balance (from a 1976 deficit of just over £1 billion).