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Text Any textual data included in the document ~--- STATISTICAL APPENDIX by Martin Fetherston Contents Introduction Methodology and assumptions Summary tables A Historical summary 1960-74 B Summary of Deflation Forecast C Summary of Reflation Forecast D Summary of Devaluation Forecast E Summary of Import Restriction Forecast F Summary oflmport Restriction Forecast with Low Inflation Main tables 1 2 3 4 5 6 7 8 9 10 GDP, Employment and Unemployment Public Expenditure Gross Fixed Capital Formation Stockbuilding Actual Balance of Trade, 1960-74 Disaggregated Imports- Actual 1960-74 Balance of Payments Real Wages and Inflation Real National Income The North Sea Economy Notes and definitions 62 ,._ Introduction Statistical Appendix This Appendix presents the details of alternative conditional forecasts for the U.K. economy up to 1978. The methodology and specific assumptions of these forecasts are described below. Summary tables give the results ofeach forecast. The main tables give comparative figures on each component aspect of the forecasting system, comparing past data for 1960-74 with the forecasts. The notes and definitions for each table explain precisely how the figures are derived. Methodology and assumptions The method of medium-term analysis which is employed here, and which has been employed in previous similar exercises by the Cambridge Economic Policy Group, essentially involves the attempt to extract and project underlying trends in the development of the economy. Over a medium-term horizon of four years, the prospects for the economy in terms of feasible actual movements of GDP, unemployment, the balance of payments and private consumption are in the first instance dominated by trend movements in productivity and U.K. selling power in world markets. It is assumed, therefore, that the actual pattern of economic events which we observe consists of short-term deviations about longer-term trends. In order to project these trends and make inferences about the future prospects for the economy, it is necessary to correct observed past series for deviations from trend in their determining variables and thus extract the underlying trends. As will be clear from the notes which accompany the tables below, employment, unemployment, private investment, stockbuilding and import volumes are all corrected for variations in the pressure of demand - or in our term- inology, for deviations of actual GDP from par (this concept is discussed further below). Export and import prices, and export volumes, are corrected for deviations of world trade, inflation and U.K. relative costs (adjusted for exchange-rate movements) from their respective trends. Having attempted to adjust these variables for the most important known causes of short-term fluctuations about trends, our criterion of success is the extent to which the resultant series is sufficiently smooth to represent the underlying trend which we wish to extract. Any large discontinuity in such an adjusted series is interpreted either as due to a shift in the trend (which we would attempt to explain) or as the effect of some cause of abnormal deviations which has not been allowed for in the adjustment process. The most obvious example of this is the speculative element in the recent commodity price boom, only a part of which could be attributed to the systematic effect of the high level of world trade. Extrapolations of past trends into the future frequently require two types of correction. First it is necessary to make a judgement on the likely continuance of abnormal factors, such as the speculative element in commodity prices, which cannot be explained by analytic relationships. Further the trend must be altered to allow for known future influences, such as the development of the North Sea. As an example of the extraction and projection of trends, consider the volume of imports of semi-fmished manufactures (SF in Table 6). As indicated by equation 5.4, this series is adjusted for deviations of GDP from par by means of a marginal import coefficient to give a trend series: Actual Adjustment 0.1 X (GDP*-GDP) Trend 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1376 1336 1340 1476 1761 1721 1783 1950 2266 2354 2500 2642 3029 3421 3814 3843 4253 4790 5367 -168 -148 -78 -98 -184 -171 -116 -66 -93 -28 15 66 69 -48 64 206 195 96 1 1208 1188 1262 1378 1577 1550 1667 1884 2173 2326 2515 2708 3098 3373 3878 4049 4448 4886 5368 Actual + Adjustment =Trend Forecast Actual = Trend - Adjustment 63 Economic Policy Review The trend series, which is our estimate of what the volume of imports of semi-finished manufactures would have been at a constant pressure of demand, is projected up to 1978 by fitting a logarithmic time trend to the adjusted series between the year:: 1966 and 1972 inclusive, and extrapolating this trend into the future. The short-term component is then reintroduced by making the same adjustment to reintroduce the actual pressure of demand assumed for a particular conditional forecast (in the table above, our 'reflation forecast'). In previous exercises we have extensively used the concept of "par" in the analysis. This concept, originally developed with the specific aim of assessing the mediumterm impact of the Government's public expenditure plans, is defined as describing how the economy would have appeared, and would appear in the future, if a constant pressure of demand were maintained and if the U.K. were sufficiently competitive in world markets to meet specified targets for the balance of trade. However, under current circumstances of extreme imbalance, there is little prospect in the reasonably near future of the U.K. achieving a trade performanpe that could justify the description of a satisfactory target. Furthermore, in order to carry out the trending and detrending operations described above it is strictly necessary only to construct par GDP, i.e. that output path corresponding to 21h% unemployment. (The construction of this series is described under Table 1 below). This is because the trend balance of trade does not correspond to par trade performance (indeed the trend movement has been one of substantial deterioration), and so in order to construct the par balance of trade and its components further adjustments to the trend balance would be necessary. For these reasons we do not now consider the par economy as such as a viable or realistic path for the economy in the future; in the notes to the tables below par refers only to the pressure of demand, and only appears where necessary to adjust particular series for this source of fluctuation. To summarise, the process of obtaining actual projections has three stages: ( 1) Firstly, the extraction of underlying trends from their short-term components by the application of a precise set of rules to past actual data. At this stage we have obtained a picture of how the economy might have looked in the past if a pressure of demand equivalent to a 2lh%rate ofunemploymenthad been sustained throughout, and if world trade and U.K. costs, both in absolute terms and relative to our major competitors, had followed their respective trend paths. (2) The trend economy obtained in (1) is then projected into the future, making allowances where necessary (for example in the case of import prices) for abnormal behaviour in relation to trend and for where the past trend may be expected to shift in the future. (3) For any given set of assumptions about the future movements of actual exogenous variables - such ;ts GDP, world trade and relative competitiveness adjustments are made to the trend series which effectively reintroduce their short-term components. It is then possible to investigate the division of total claims on resources between the various categories of expenditure. Given a projected future path of actual GDP together with forecasts of private investment (including stockbuilding), exports and imports which are conditional on that path it is possible to infer the volume of resources (in terms of expenditure measured at constant prices) which is available for public expenditure plus private consumption. Estimates of the future growth of public expenditure then permit projections of the resources available for private consumption.. As is explained in detail below under Table 8, this residual projection of consumption is used to generate projections of inflation so that we have a consistent relationship between real demands on resources and their inflationary implications. An additional feature of the analysis is the detailed treatment of the North Sea as an economy in its own right. The adjustments described above are carried out, where relevant, on a North Sea exclusive basis, in that items attributable to the North Sea (such as that part of imports of finished manufactures which are imports of capital equipment for the North Sea) are removed prior to the adjustment, and then added back subsequently. The adjustments to the national accounts which are necessa?l to exclude the North Sea are described elsewhere ( ). Alternative Projections Five variant projections have been analysed in detail, and the results of these projections are presented selectively in the tables which follow. All the forecasts assume low overall growth of world trade, at 5% per year, from 1974-78. This involves zero growth of world trade in 1974-75, followed by a steady acceleration to an 11% increase in 1977-78. All forecasts except the 'devaluation' case assume that the sterling exchange rate is allowed to depreciate to offset excess inflation in the U.K. and hold the rise in relative costs down to its long-run average increase of 1% per year. A) Deflation: this projection investigates the consequences of permitting a continuing decline in the pressure of demand such that GOP grows at an average rate of less than 2% per annum and unemployment rises to about 1.2 million by tht: end of 1978. On this basis the deficit on current account at 1974 values improves to £2.4 billion in the terminal year. B) Reflation: here the economy grows at an average rate of 3.6% per annum between 1974 and 1978, which reduces unemployment to 625,000 by the end of 1978. No additional action is taken to improve the balance of payments, and as a result the current deficit deteriorates to £5 billion at 1974 values by 1978. The remaining projections thus explore possible alternative ways of achieving tolerable payments deficits whilst protecting employment. C) Devaluation: the other projections assume a 1% per annum deterioration in U.K. relative costs; in this projection a 15% improvement in 1975 is superimposed on this path. The current deficit at 1974 values recovers to £1.8 billion in 1978, but at the cost of a substantially greater rate of inflation than in the other projections. D) Import restriction: measures are assumed to be taken to restrict the rate of growth of finished manufactures to about 10% per annum less than would otherwise be the case. On this projection the current balance 64 Statistical Appendix at 1974 values improves to £2.7 billion by the end of the period. E) Import restriction and low inflation: the same as D), except that the amount of wage increases in excess of compensation for past price increases is assumed to be less than in the other projections. At 1974 values, the outcome for the current balance is as much as in D), but the projected rate of inflation is lower. 65 Economic Policy Review TABLE A Historical summary 1960-74 A Unemployment (th.) Relative costs (ind) B. Expenditure on GDP (£1970m) Private consumption Public consumption Fixed investment Stockbuilding Exports of goods and services Imports of goods and services Adjustment to factor cost GDP at factor cost C. Real wages and inflation Total real personal post-tax income (£1970m) Real average post-tax earnings (£1970) Real average pre-tax earnings (£1970) Inflation of pre-tax earnings.(%) Inflation of consumer prices(%) D. Balance of payments Resource balance (£1970m) Terms of trade (ind) Balance on goods and services at 1974 export values (£1974m) Current balance at 1974 export values (£1974m) Oil deficit (£1974m) E. Real national income (£1970m) Domestic expenditure (£1970m) Current balance in real terms (£1970m) 1960 1961 1962 u 349 374 524 RC 0.942 0.967 0.975 c 25146 25734 26279 CG 7379 7647 7889 I 5743 6380 6344 s 767 369 12 X 7014 7225 7345 M 7399 7346 7487 A 6104 6203 6209 Q 32904 33764 34152 PDI 27039 28117 28329 WD 1132 1169 1176 w 1306 1364 1386 w' 6.8 7.5 5.6 PC 1.1 3.0 3.9 X-M -385 -121 -142 TT 0.978 0.990 1.001 BT -838 -299 -204 CB -525 12 246 OD 0 0 0 y 39008 40097 40675 DE 39035 40130 40524 CB -385 9 173 Units: (th) thousands, (ind) index 1970=1.000, (£1970m) £million 1970 prices, (£1970) £per 66 Statistical Appendix 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 483 363 339 455 578 573 583 618 874 788 518 662 0.986 1.020 1.044 1.063 1.059 0.961 0.979 1.000 1.041 1.053 0.970 1.010 27427 8014 6471 215 7649 7761 6465 35485 28283 8138 7529 934 7951 8480 6771 37506 28717 8357 7827 615 8336 8561 6798 38582 29269 8595 8021 411 8679 8780 6918 39270 29852 9075 8605 361 8786 9371 7115 40044 30564 9103 9020 505 9811 10058 7278 41636 30649 8960 9069 445 10726 10355 7252 42367 31387 9095 9237 438 11260 10872 7533 43012 32241 9366 9319 84 12068 11395 7865 43614 34179 35759 9745 10109 9543 10004 -39 674 12380 13494 12530 13904 8519 9019 44732 47055 35666 10300 9932 200 14348 14153 8913 47229 29575 1226 1441 6.0 1.9 30681 1273 1505 7.9 3.4 31403 1277 1541 7.4 4.9 32092 1291 1576 6.4 4.0 32549 1324 1623 6.0 2.9 33082 1345 1674 8.2 4.9 33228 1351 1697 7.1 5.7 34309 1409 1801 12.3 5.8 35249 1469 1872 12.5 8.2 37625 1566 1979 12.8 6.7 39609 1610 2053 12.6 8.6 40301 1640 2144 19.5 14.4 -112 -529 -225 -101 -585 -247 371 388 673 -150 -410 195 0.991 0.971 0.982 0.997 1.003 0.983 0.983 1.000 1.006 1.002 0.928 0.816 -273 -1182 -576 -188 -843 -642 247 -750 -94 156 -574 -471 000000 293 587 1127 -197 -2258 -4544 739 1069 1577 160 -1475 -3730 0 0 0 0 -326 -3119 42233 44297 45543 46391 47374 48845 49730 50864 51811 53499 55553 53413 42127 44884 45516 46296 47893 49192 49123 50157 51010 53428 56546 56098 171 -509 -62 102 -370 -316 480 707 1005 97 -931 -2534 person per year at 1970 prices, (%) % increase per year, (£1974m) £ million 1974 prices. 67 Economic Policy Review TABLEB Summary of Deflation Forecast A. Unemployment (th) Relative costs (ind) B. Expenditure on GDP (£1970m.) Private consumption Public consumption Fixed investment Stockbuilding Exports of goods and services Imports of goods and services Adjustment to factor cost GDP at factor cost c. Real wages and inflation Total real personal post-tax income (£1970m.) Real average post-tax earnings (£1970) Real average pre-tax earnings (£1970) Inflation of pre-tax earnings (%) Inflation of consumer prices(%) D. Balance of payments Resource balance (£1970m.) Terms of trade (ind) Balance on goods and services at 1974 export values (£1974m) Current balance at 1974 export values (£1974m.) Oil deficit (£1974m.) E. Real national income (£1970m.) Domestic expenditure (£1970m.) Current balance in real terms (£1970m.) u RC c CG I s X M A Q PDI WD w w' PC X-M TI BT CB OD y DE CB 1974 1975 1976 1977 1978 662 1010 1000 1020 1007 1.030 1073 1040 1157 1051 35666 10300 9932 200 14348 14153 8913 47229 36391 10600 9588 -279 14500 14281 9168 47219 37450 10900 9715 328 14813 15178 9477 48405 38568 11200 10059 446 15461 16015 9842 49717 39502 11550 10236 427 16481 16948 10150 50924 40301 1640 2144 19.5 14.4 40439 1686 2242 25.2 19.8 42016 1772 2388 24.5 16.8 43280 1830 2497 25.0 19.5 44380 1887 2599 28.7 23.6 195 0.816 -4544 -3730 -3119 53413 56098 -2534 219 0.849 -3511 -3549 -3132 53883 56300 -2285 -365 0.937 -2083 -2601 -2883 56611 58393 -1636 -554 0.985 -1205 -2308 -2091 58724 60273 -1389 -466 0.995 -827 -2386 -1396 60182 61715 -1359 Units: see Table A. For assumptions, see page 64 68 Statistical Appendix TABLEC Summary of Reflation Forecast A. Unemployment (th.) Relative costs (ind.) B. Expenditure on GDP (£1970m) Private consumption Public consumption Fixed investment Stockbuilding Exports of goods and services Imports of goods and services Adjustment to factor cost GDP at factor cost C. Real wages and inflation Total real personal post-tax income (£1970m.) Real average post-tax earnings (£1970) Real average pre-tax earnings (£1970) Inflation of pre-tax earnings(%) Inflation of consumer prices (%) D. Balance of payments Resource balance (£1970m.) Terms of trade (ind) Balance on goods and services at 1974 export values (£1974m.) Current balance at 1974 export values (£1974m.) Oil deficit (£1974m.) E. Real national income (£1970m.) Domestic expenditure (£1970m.) Current balance in real terms (£1970m.) Units: see Table A For assumptions, see page 64 u RC c CG I s X M A Q PDI WD w w' PC X-M TT BT CB OD y DE CB 1974 1975 1976 1977 1978 662 1.010 1000 1.020 925 1.030 762 1.040 625 1.051 35666 10300 9932 200 14348 14153 8913 47229 36170 10600 9732 -279 14500 14281 9091 47219 37677 10900 10107 468 14813 15429 9524 48865 41183 11200 10815 922 15461 17166 10659 51597 45449 11550 11489 1040 16481 19313 12148 54374 40301 1640 2144 19.5 14.4 40130 1672 2226 26.5 21.9 42421 1781 2403 24.2 15.1 46827 1947 2645 14.0 3.5 51712 2125 2893 4.7 -4.2 195 0.816 -4544 -3730 -3119 53413 56098 -2534 219 0.848 -3539 -3588 -3141 53803 56223 -2288 -616 0.938 -2471 -2972 -2930 57124 59152 -1882 -1705 0.994 -2739 -3649 -2244 61573 64120 -2387 -2831 1.011 -3954 -5163 -1698 65891 69528 -3463 69 Economic Policy Review TableD Summary of Devaluation Forecast A. Unemployment (th) Relative costs (ind) B. Expenditure on GDP (£1970m) Private consumption Public consumption Fixed investment Stockbuilding Exports of goods and services Imports of goods and services Adjustment to factor cost GDP at factor cost c. Real wages and inflation Total real personal post-tax income (£1970m) Real average post-tax earnings (£1970) Real average pre-tax earnings (£1970) Inflation of pre-tax earnings(%) Inflation of consumer prices(%) D. Balance of payments Resource balance (£1970m) Terms of trade (ind) Balance on goods and services at 1974 export values (£1974m) Current balance at 1974 export values (£1974m) Oil deficit (£1974m) E. Real national income (£1970m) Domestic expenditure (£1970m) Current balance in real terms (£1970m) Units: see Table A For assumptions, see page 64 u RC c CG I s X M A Q PDI WD w w PC X-M TT BT CB OD y DE CB 1974 1975 1976 1977 1978 662 1.010 928 0.887 864 0.896 771 0.905 624 0.914 35666 10300 9932 200 14348 14153 8913 47229 35397 10600 9786 -157 15376 14482 8770 47619 35872 10900 10218 508 16415 15657 8837 49274 37785 11200 10835 799 17705 17166 9399 51597 40861 11550 11449 1001 19359 19313 10359 54374 40301 1640 2144 19.5 14.4 39048 1622 2165 31.9 30.7 40197 1679 2283 37.9 30.8 42693 1773 2441 35.3 26.5 46446 1909 2649 27.9 17.9 195 0.816 -4544 -3730 -3119 53413 56098 -2534 894 0.824 -3316 -3117 -3508 53477 55626 -2018 758 0.909 -1228 -1581 -3266 56358 57498 -996 539 0.958 -322 -1147 -2508 59744 60617 -712 47 0.974 -699 -1765 -1913 63580 64861 -1107 70 "" Statistical Appendix Table E Summary of Import Restriction Forecast 1974 1975 1976 1977 1978 A. Unemployment (th) Relative costs (ind) B. Expenditure on GDP (£1970m) Private consumption Public consumption Fixed investment Stockbuilding Exports of goods and services Imports of goods and services Adjustment to factor cost GDP at factor cost c. Real wages and inflation Total real personal post-tax income {£1970m) Real average post-tax earnings {£1970) Real average pre-tax earnings {£1970) Inflation of pre-tax earnings (%) Inflation of consumer prices (%) D. Balance of payments Resource balance (£1970m) Terms of trade (ind) Balance on goods and services at 1974 export values {£1974m) Current balance at 1974 export values (£1974m) Oil deficit (£1974m) E. Real national income (£1970m) Domestic expenditure (£1970m) Current balance in real terms (£1970m) Units: see Table A For assumptions, see page 64 u 662 928 864 771 624 RC 1.010 1.020 1.030 1.040 1.051 c 35666 36374 37235 39141 41751 CG 10300 10600 10900 11200 11550 I 9932 9786 10218 10833 11449 s 200 -157 508 799 1001 X 14348 14500 14813 15461 16481 M 14153 14239 14961 15845 17091 A 8913 9114 9294 9832 10593 Q 47229 47619 49274 51597 54374 PDI 40301 40416 41722 44164 47281 WD 1640 1678 1743 1834 1943 w 2144 2234 2354 2506 2676 w 19.5 25.9 27.6 26.1 22.7 PC 14.4 20.9 21.1 18.5 14.9 X-M 195 261 -148 -384 -610 TT 0.816 0.846 0.930 0.977 0.988 BT -4544 -3518 -1922 -1154 -1242 CB -3730 -3561 -2486 -2229 -2657 OD -3119 -3178 -2999 -2307 -1773 y 53413 54189 57185 60470 63998 DE 56098 56603 58861 61973 65751 CB -2534 -2282 -1530 -1343 -1579 71 Economic Policy Review Table F Summary of Import Restriction Forecast with Low Inflation 1974 1975 1976 1977 1978 A. Unemployment (th) Relative costs (ind) B. Expenditure on GDP (£1970m) Private consumption Public consumption Fixed investment Stockbuilding Exports of goods and services Imports of goods and services Adjustment to factor cost GDP at factor cost C. Real wages and inflation Total real personal post-tax income (£1970m) Real average post-tax earnings (£1970) Real average pre-tax earnings (£1970) Inflation of pre-tax earnings(%) Inflation of consumer prices(%) D. Balance of payments Resource balance (£1970m) Terms of trade (ind) Balance on goods and services at 1974 export values (£1974m) Current balance at 1974 export values (£1974m) Oil deficit (£1974m) E. Real national income (£1970m) Domestic expenditure (£1970m) Current balance in real terms (£1970m) Units: see Table A For assumptions, see page 64 u 662 928 864 771 624 RC 1.010 1.020 1.030 1.040 1.051 c 35666 36374 37235 39141 41751 CG 10300 10600 10900 11200 11550 I 9932 9786 10218 10833 11449 s 200 -157 508 799 1001 X 14348 14500 14813 15461 16481 M 14153 14239 14961 15845 17091 A 8913 9114 9294 9832 10593 Q 47229 47619 49274 51597 54374 PDI 40301 40416 41722 44164 47281 WD 1640 1678 1743 1834 1943 w 2144 2227 2340 2483 2644 w' 19.5 20.3 19.8 16.2 11.0 PC 14.4 15.9 14.0 9.5 4.3 X-M TT BT CB OD y DE CB 195 0.816 -4544 -3730 -3119 53413 56098 -2534 261 0.850 -3396 -3414 -3094 54263 56603 -2208 -148 0.937 -1751 -2234 -2946 57324 58861 -1391 -384 0.985 -943 -1876 -2256 60667 61973 -1146 -610 0.997 -990 -2197 -1725 64250 65751 -1327 72 Statistical Appendix Table 1 G. D.P.. Employment and Unemployment G.D.P. in this table is defined to exclude the North Sea (see notes for further explanation). Year GDP u tt E E' E* GDP* 1960 32904 349 361 24983 24925 24250 31226 1961 33764 374 371 25028 25022 24423 32282 1962 34152 524 505 25111 25101 24598 33373 1963 35485 483 488 25367 25335 24774 34501 1964 37506 363 378 25681 25642 24951 35668 1965 38582 339 342 25869 25846 25130 36874 1966 39270 455 441 25644 25672 25138 38109 1967 40042 578 563 25411 25440 25146 39385 1968 41629 573 574 25353 25360 25153 40704 1969 42350 583 582 25269 25280 25161 42067 1970 42974 618 614 25082 25105 25187 43127 1971 43551 874 842 24625 24682 25214 44214 1972 44640 788 799 25113 25052 25240 45329 1973 46955 518 552 25516 25466 25266 46471 1974 47112 662 644 25227 25263 25292 47752 Growth rates 1960-5 1965-9 1969-74 3.2 2.4 2.2 Deflation 1975 1976 1977 1978 47075 48158 49266 50308 1000 1007 1073 1157 Growth rate 1974-8 1.6 Reflation 1975 1976 1977 1978 47075 48618 51146 53758 1000 925 762 625 Growth rate 1974-8 3.4 0.7 -0.6 0.0 958 24442 1006 24500 1065 24445 1147 24377 -0.8 958 24442 935 24703 783 25223 642 25706 0.5 0.7 -0.6 0.0 24540 24493 244-52 24385 -0.9 24540 24671 25158 25646 0.4 0.7 3.4 0.0 3.4 0.1 2.6 Par growth 25350 25419 25520 25649 49130 50567 52115 53766 0.4 3.0 P* 1.288 1.322 1.357 1.393 1.430 1.467 1.516 1.566 1.618 1.672 1.712 1.754 1.796 1.839 1.888 2.6 3.3 2.5 1.938 1.989 2.042 2.096 2.6 73 Economic Policy Review Table 2 Public Expenditure Year CG IDG IKG IG G 1960 7379 393 2077 2470 9849 1961 7647 411 2267 2678 10325 1962 7889 466 2306 2772 10661 1963 8014 479 2390 2869 10883 1964 8138 630 2710 3340 11478 1965 8357 663 2813 3476 11833 1966 8595 750 2972 3722 12317 1967 9075 848 3368 4216 13291 1968 9103 894 3332 4226 13329 1969 8960 900 3110 4010 12970 1970 9095 801 3299 4100 13195 1971 9366 730 3321 4051 13417 1972 9745 698 3204 3902 13647 1973 10109 683 3234 3917 14026 1974 10300 750 3250 4000 14300 Growth rates 196~5 2.5 1965-9 1.8 1969-74 28 11.0 7.9 -3.6 6.2 7.1 2.5 3.6 0.9 0.0 3.7 2.3 2.0 Assumed in deflation projection 1975 10600 750 3300 1976 10900 700 3278 1977 11200 700 3261 1978 11550 700 3201 4050 3978 3961 3901 14650 14878 15161 15451 Growth rate 1974-8 2.9 -1.7 -0.4 -0.6 2.0 Assumed in other projections 1975 10600 750 3300 1976 10900 700 3328 1977 11200 700 3361 1978 11550 700 3351 4050 4028 4061 4051 14650 14928 15261 15591 Growth rate 1974-8 2.9 -1.7 0.8 0.3 2.2 74 Statistical Appendix Table 3 Gross Fixed Capital Formation Year IG IDP IKP I 1960 2470 679 1961 2678 689 1962 2772 678 1963 2869 696 1964 3340 836 1965 3476 841 1966 3722 789 1967 4216 829 1968 4226 871 1969 4010 769 1970 4100 700 1971 4051 829 1972 3902 981 1973 3917 1056 1974 4000 782 2594 3013 2894 2906 3353 3510 3510 3560 3923 4290 4437 4439 4660 5031 5150 5743 6380 6344 6471 7529 7827 8021 8605 9020 9069 9237 9319 9543 10004 9932 Growth rates 196(}.5 7.1 1965-9 3.6 1969-74 0.0 4.4 -2.2 0.3 6.2 5.1 3.7 6.4 3.8 1.8 Deflation 1975 1976 1977 1978 4050 3978 3961 3901 625 700 775 850 4913 5037 5323 5485 9588 9715 10059 10236 Growth rate 1974-8 -0.6 2.1 1.6 0.8 Reflation 1975 1976 1977 1978 4050 4028 4061 4051 625 700 775 850 5057 5379 5979 6598 9732 10107 10815 11499 Growth rate 1974-8 0.3 2.1 6.4 3.7 Q 32904 33764 34152 35485 37506 38582 39270 40044 41636 42367 43012 43614 44732 47055 47229 IDP* 697 683 776 725 773 793 775 853 745 868 852 825 852 966 975 IKP* 2423 2613 2745 2808 3042 3117 3293 3475 3819 4186 4509 4578 4831 4997 5102 I* 5589 5974 6293 6402 7155 7386 7790 8544 8790 9064 9461 9454 9585 9880 10077 Q* 31226 32282 33373 34501 35668 36874 38109 39386 40711 42084 43165 44277 45420 46571 47869 3.2 2.6 2.4 2.3 2.2 2.4 5.2 7.7 4.0 47219 48405 49717 50924 Par growth 975 5473 1003 5869 1030 6182 1060 6544 5.7 5.3 2.1 10498 10900 11273 11655 3.4 3.4 2.6 49274 50814 52566 54382 1.9 2.1 6.4 3.7 3.2 47219 48865 51597 54374 3.6 75 Economic Policy Review Table 4 Year Stockbuilding s H 1960 767 1961 369 1962 12 1963 215 1964 934 1965 615 1966 411 1967 361 1968 505 1969 445 1970 438 1971 84 1972 -39 1973 674 1974 200 13572 13941 13953 14168 15102 15717 16128 16489 16994 17439 17877 17961 17922 18596 18796 Growth rates 1960-5 1965-9 1969-74 3.0 2.6 1.5 Deflation 1975 1976 1977 1978 -279 328 446 427 18517 18844 19290 19718 Growth rate 1974-8 1.2 Reflation 1975 1976 1977 1978 -279 468 922 1040 18517 18984 19907 20947 Growth rate 1974-8 2.8 H/Y 41.2 41.3 40.9 39.9 40.3 40.7 41.1 41.2 40.8 41.2 41.6 41.2 40.2 39.6 39.9 -0.2 0.3 -0.6 39.3 39.1 39.2 39.2 -0.4 39.3 39.0 38.9 39.0 -0.6 S* H* 403 12129 415 12545 429 12974 444 13418 459 13878 475 14353 487 14840 503 15343 520 15864 538 16402 420 16822 431 17253 442 17695 454 18149 508 18657 3.3 3.2 -1.2 Par growth 546 570 614 654 3.4 3.4 2.6 19203 19773 20387 21042 6.5 3.0 H*/Y* 38.8 38.9 38.9 38.9 38.9 38.9 38.9 39.0 39.0 39.0 39.0 39.0 39.0 39.0 39.1 0.04 0.04 0.04 39.1 39.1 39.1 39.1 0.0 76 TableS Actual Balance of Trade, 1960.74 Year X M PX 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 7014 7225 7345 7649 7951 8336 8679 8786 9811 10726 11260 12068 12380 13494 14348 7399 7346 7487 7761 8480 8561 8780 9371 10058 10355 10872 11395 12530 13904 14153 0.734 0.743 0.749 0.759 0.770 0.787 0.811 0.825 0.898 0.919 1.000 1.048 1.074 1.224 1.512 Growth rates 1960-5 1965-9 1969-74 3.5 6.5 6.0 3.0 1.4 4.9 3.9 6.4 10.5 PM 0.751 0.751 0.748 0.766 0.793 0.801 0.814 0.823 0.913 0.935 1.000 1.041 1.072 1.320 1.854 1.3 3.9 14.7 Statistical Appendix IT 0.978 0.990 1.001 0.991 0.971 0.982 0.997 1.003 0.983 0.983 1.000 1.006 1.002 0.928 0.816 I X 5147 5368 5503 5809 6119 6561 7043 7248 8806 9856 11260 12645 13298 16519 21691 M' 5554 5515 5604 5946 6721 6861 7144 7708 9187 9678 10872 11864 13438 18347 26235 BT -407 -147 -101 -137 -602 -300 -101 -460 -381 178 388 781 -140 -1828 -4544 0.1 5.0 4.3 0.0 10.7 9.0 -3.7 17.1 22.1 77 Economic Policy Review Table 6 Disaggregated Imports - Actual 1960-74 Year FDT PFDT FU PFU 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1969 1969 2047 2008 2047 2008 1969 2047 2106 2028 2047 2047 2088 2108 2068 0.782 0.754 0.766 0.835 0.865 0.851 0.869 0.861 0.902 0.952 1.000 1.063 1.130 1.457 1.848 449 468 524 557 599 655 720 772 819 879 945 1030 1030 1058 1019 1.069 1.030 1.017 1.002 0.975 0.930 0.868 0.944 1.101 1.032 1.000 1.211 1.208 1.633 4.572 Growth rates 196~5 1965-9 1969-74 0.4 0.2 0.4 1.7 2.8 14.2 7.8 -2.8 7.6 2.6 3.0 34.7 FM 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 674 714 771 820 1026 1087 1209 1432 1567 1704 2062 2382 2960 3848 3871 Growth rates 196~5 1965-9 1969-74 10.0 11.9 17.8 PFM 0.767 0.779 0.780 0.795 0.816 0.811 0.819 0.839 0.962 0.967 1.000 1.018 1.056 1.204 1.433 1.1 4.5 8.2 sv 1606 1621 1616 1649 1708 1755 1803 1838 1826 1996 1946 2050 2151 2053 2100 1.8 3.3 1.0 PSV 0.580 0.622 0.632 0.619 0.635 0.667 0.686 0.711 0.790 0.790 1.000 1.058 1.119 1.297 1.529 2.8 4.3 14.1 BM 1325 1238 1189 1251 1337 1325 1263 1251 1374 1337 1362 1239 1267 1416 1281 PBM 0.815 0.815 0.778 0.791 0.837 0.837 0.840 0.809 0.878 0.937 1.000 1.025 1.046 1.390 2.023 SF 1376 1336 1340 1476 1761 1721 1783 1950 2266 2354 2500 2642 3029 3421 3814 PSF 0.730 0.730 0.713 0.711 0.752 0.797 0.830 0.820 0.935 0.978 1.000 0.974 0.981 1.252 1.679 0.0 0.2 -0.8 AC 0 0 0 0 2 10 33 81 100 57 10 5 5 0 0 0.5 4.6 1.8 2.9 8.1 5.3 16.6 10.1 11.4 PAC 1.000 1.200 1.242 1.210 1.090 1.070 1.000 1.000 1.000 M 7399 7346 7487 7761 8480 8561 8780 9371 10058 10355 10872 11395 12530 13904 14153 PM 0.751 0.751 0.748 0.766 0.793 0.801 0.814 0.823 0.913 0.935 1.000 1.041 1.072 1.320 1.854 3.0 1.3 4.9 3.9 6.4 14.7 78 Statistical Appendix Table 7A Balance of Payments: Deflation Relative costs (unadj.) Relative exchange rate Relative costs (adj.) Exports of goods and services (volume) Imports of goods and services (volume) Export prices Import prices Terms of trade Exports of goods and services (value) Imports of goods and services (value) Balance on goods and services (a) Balance on goods and services · Interest, profits and dividends Transfers Current balance Long-term capital Net trade credit Basic balance RD RX RC X M PX PM TT x' M' BT BT IPD T CB LTC NTC BB 1974 1.181 0.855 1.010 14348 14153 1.512 1.854 0.816 21691 26235 -4544 -4544 1200 -386 -3730 1320 -616 -3106 1975 1.354 0.753 1.020 14500 14281 1.726 2.034 0.849 25033 29041 -4008 -3511 510 -547 -3549 938 -385 -2995 1976 1.543 0.667 1.030 14813 15178 1.979 2.111 0.937 29319 32044 -2726 -2083 121 -640 -2602 976 -461 -2087 1977 1.768 0.588 1.040 15461 16015 2.277 2.311 0.985 35200 37014 -1814 -1205 -357 -746 -2308 1047 -523 -1783 1978 2.084 0.504 1.051 16481 16948 2.676 2.689 0.995 44106 45569 -1463 -827 -724 -836 -2386 1165 -642 -1863 (a) This item, and all below it, are expressed in 1974 export values. Table 7B Balance of Payments: Reflation Relative costs (unadj.) Relative exchange rate Relative costs (adj.) Exports of goods and services (volume) Imports of goods and services (volume) Export prices Import prices Terms of trade Exports of goods and services (value) Imports of goods and services (value) Balance on goods and services (a) Balance on goods and services Interest, profits and dividends Transfers Current balance Long-term capital Net trade credit Basic balance (a) See note to Table 7A RD RX RC X M PX PM TT x' M' BT BT IPD T CB LTC NTC BB 1974 1.181 0.855 1.010 14348 14153 1.512 1.854 0.816 21691 26235 -4544 -4544 1200 -386 -3730 1320 -616 -3106 1975 1.368 0.745 1.020 14500 14281 1.739 2.051 0.848 25222 29291 -4070 -3539 499 -549 -3589 940 -403 -3051 1976 1.556 0.662 1.030 14813 15429 1.997 2.128 0.938 29575 32838 -3263 -2471 138 -640 -2972 974 -442 -2440 1977 1.625 0.640 1.040 15461 17166 2.147 2.160 0.994 33192 37081 -3889 -2739 -183 -728 -3649 1021 -261 -2890 1978 1.559 0.674 1.051 16481 19313 2.119 2.096 1.011 34932 40473 -5542 -3954 -420 -789 -5163 1100 -16 -4079 79 Economic Policy Review Table 7C Balance of Payments: Devaluation Relative costs (unadj.) Relative exchange rate Relative costs (adj.) Exports of goods and services (volume) Imports of goods and services (volume) Export prices Import prices Terms of trade Exports of goods and services (value) Imports of goods and services (value) Balance on goods and services (a) Balance on goods and services Interest, profits and dividends Transfers Current balance Long-term capital Net trade credit Basic balance (a) See note to Table 7A RD RX RC X M PX PM TT x' M' BT BT IPD T CB LTC NTC BB 1974 1.181 0.855 1.010 14348 14153 1.512 1.854 0.816 21691 26235 -4544 -4544 1200 -386 -3730 1320 -616 -3106 1975 1.427 0.621 0.887 15376 14482 1.893 2.297 0.824 29108 33261 -4152 -3316 788 -589 -3118 734 -813 -3197 1976 1.802 0.497 0.896 16415 15657 2.422 2.665 0.909 39751 41718 -1967 -1228 330 -683 -1581 744 -966 -1802 1977 2.234 0.405 0.905 17705 17166 3.035 3.167 0.958 53726 54372 -646 -322 -33 -793 -1147 789 -953 -1311 1978 2.618 0.349 0.914 19359 19313 3.632 3.728 0.974 70311 71992 -1680 -699 -200 -865 -1764 856 -850 -1758 Table 7D Balance of Payments: Import restriction 1974 Relative costs (unadj.) Relative exchange rate Relative costs (adj.) RD 1.181 RX 0.855 RC 1.010 Exports of goods and services (volume) Import of goods and services (volume) Export prices Import prices Terms of trade Exports of goods and services (value) Imports of goods and services (value) Balance on goods and services X 14348 M 14153 PX 1.512 PM 1.854 TT 0.816 x' 21691 M' 26235 BT -4544 (a) Balance on goods and services Interest, profits and dividends Transfers Current balance Long-term capital Net trade credit Basic balance BT IPD T CB LTC NTC BB -4544 1200 -386 -3730 1320 -616 -3106 (a) See note to Table 7A 1975 1.362 0.749 1.020 14500 14239 1.733 2.048 0.846 25132 29164 -4032 -3518 504 -548 -3561 940 -394 -3016 1976 1.591 0.647 1.030 14813 14961 2.026 2.179 0.930 30017 32593 -2576 -1922 80 -644 -2486 982 -522 -2025 1977 1.839 0.566 1.040 15461 15845 2.363 2.419 0.977 36528 38331 -1803 -1154 -327 -748 -2228 1050 -553 -1731 1978 2.067 0.508 1.051 16481 17091 2.690 2.723 0.988 44338 46547 -2209 -1242 -591 -824 -2657 1149 -524 -2032 80 Statistical Appendix Table 8A Real Wages and Inflation Year PDI YW EE w 1960 27039 19547 17267 1306 1961 28117 20303 17369 1364 1962 28329 20408 17346 1386 1963 29575 21098 17203 1441 1964 30681 21989 17273 1505 1965 31403 22186 17362 1541 1966 32092 22550 17462 1576 1967 32549 22714 17149 1623 1968 33082 22779 16940 1674 1969 33228 22810 16879 1697 1970 34309 23673 16803 1801 1971 35249 24274 16524 1872 1972 37625 25694 16401 1979 1973 39609 26825 16659 2053 1974 40301 27204 16589 2144 Growth rates 1960-5 3.0 1965-9 1.4 1969-74 3.9 2.6 0.1 0.7 -0.7 3.6 -0.3 3.4 2.4 4.8 W* %PC 1292 1.1 1365 3.0 1392 3.9 1431 1.9 1510 3.4 1559 4.9 1584 4.0 1619 2.9 1690 4.9 1717 5.7 1823 5.8 1917 8.2 2012 6.7 2106 8.6 2227 14.4 w' t 879 .133 945 .143 998 .151 1058 .149 1142 .154 1227 .171 1305 .181 1383 .184 1497 .197 1604 .204 1801 .218 2026 .216 2286 .209 2575 .216 3077 .235 3.8 6.9 5.2 2.5 6.9 4.5 5.4 13.9 2.9 WD uc 1132 .639 1169 .668 1176 .687 1226 .708 1273 .745 1277 .771 1291 .793 1324 .812 1345 .862 1351 .914 1409 1.000 1469 1.093 1566 1.187 1610 1.287 1640 1.494 2.4 3.8 1.4 4.3 4.0 10.3 PDI Real personal disposable income YW Real disposable income from employment EE Equivalent full-time adult male employment w Actual real average pre-tax earnings W* Negotiated average real pre-tax earnings %PC Increase in consumer prices w' Average pre-tax earnings in money terms t Average tax rate on income from employment WD Real average earnings post-tax uc Index of unit labour costs 81 Economic Policy Review Table 8B Real wages and inflation. Year PDI YW EE Import Restriction Forecasts with high and low inflation. w W* %PC w' t High inflation 1974 40301 1975 40416 1976 41722 1977 44164 1978 47281 27204 27195 28035 29738 31935 16589 16202 16084 16214 16436 2144 2234 2354 2506 2676 2227 14.4 2372 20.9 2502 21.1 2640 18.5 2785 14.9 3077 0.235 3874 0.248 4945 0.260 6237 0.268 7653 0.274 Growth rate 1974-8 4.1 4.1 -0.2 5.7 5.8 25.6 3.9 Low inflation 1974 40301 1975 40416 1976 41722 1977 44164 1978 47281 27204 27195 28035 29738 31935 16589 16202 16084 16214 16436 2144 2227 2340 2483 2644 2227 14.4 3077 0.235 2325 15.9 3703 0.246 2427 14.0 4435 0.255 2534 9.5 5152 0.261 2646 4.3 5720 0.265 Growth rate 1974-8 4.1 4.1 -0.2 5.4 4.4 16.8 3.1 WD 1640 1678 1743 1834 1943 4.3 1640 1678 1743 1834 1943 4.3 uc 1.494 1.826 2.263 2.771 3.301 21.9 1.494 1.745 2.030 2.289 2.467 13.4 PDI Real personal disposable income YW Real disposable. income from employment EE Equivalent full-time adult male employment w Actual real average pre-tax earnings W* Negotiated average real pre-tax earnings %PC Increase in consumer prices w' Average pre-tax earnings in money terms t Average tax rate on income from employment WD Real average earnings post-tax uc Index of unit labour costs. 82 Statistical Appendix Table 9A Real National Income Year GDP QNS TIE NFY A 1960 32904 1961 33764 1962 34152 1963 35485 1964 37506 1965 38582 1966 39270 1967 40042 1968 41629 1969 42350 1970 42974 1971 43551 1972 44640 1973 46955 1974 47112 Growth rates 1960-5 3.2 1965-9 2.4 1969-74 2.2 0 -229 229 0 -94 224 0 -1 315 0 -77 360 0 -273 293 0 -156 319 0 -22 225 2 41 174 17 -183 114 17 -181 292 38 0 319 63 45 287 92 31 217 100 -1015 494 117 -3282 553 6.9 -2.2 13.6 6104 6203 6209 6465 6771 6798 6918 7115 7278 7252 7533 7865 8519 9019 8913 2.2 1.6 4.2 y DE £1970m index 39008 40097 40675 42233 44297 45543 46391 47374 48845 49730 50864 51811 53499 55553 53413 76.7 78.8 80.0 83.0 87.1 89.5 91.2 93.1 96.0 97.8 100.0 101.9 105.2 109.2 105.0 39035 40130 40524 42127 44884 45516 46296 47893 49192 49123 50157 51010 53428 56546 56098 CB -385 9 173 171 -509 -62 102 -370 -316 480 707 1005 97 -931 -2534 3.1 3.1 3.1 2.2 2.2 1.9 1.4 1.4 2.7 GDP QNS TTE NFY A y DE CB Gross domestic product at factor cost excluding North Sea output North Sea output at factor cost Terms of trade effect Net foreign income and transfers from abroad Adjustment to factor cost Real National Income Domestic expenditure Current balance deflated by price of domestic expenditure. 83 Economic Policy Review Table 9B Real National Income: Alternative Forecasts Year GDP QNS TIE NFY A Deflation forecast 1974 47112 1975 47075 1976 48158 1977 49266 1978 50308 117 144 247 451 616 Growth rate 1974-8 1.6 Import restriction forecast 1974 47112 117 1975 47475 144 1976 49027 247 1977 51146 451 1978 53758 616 Growth rate 1974-8 3.4 -3282 -2480 -945 -170 -3 553 -24 -326 -665 -889 -3282 -2515 -1036 -311 -127 553 -29 -347 -648 -842 8913 9168 9477 9842 10150 3.3 8913 9114 9294 9832 10593 4.4 y £1970m. index DE CB 53413 53883 56611 58724 60182 105.0 105.9 111.3 115.5 118.3 56098 56300 58393 60273 61715 -2534 -2285 -1636 -1389 -1359 3.0 3.0 2.4. 53413 54189 57185 60470 63998 105.0 106.5 112.4 118.9 125.8 56098 56603 58861 61973 65751 -2534 -2282 -1530 -1343 -1579 4.6 4.6 4.0 GDP QNS TIE NFY A Y DE CB Gross domestic product at factor excluding North Sea output North Sea output at factor cost Terms of trade effect Net foreign income and transfers from abroad Adjustment to factor cost Real national income Domestic expenditure Current balance deflated by price of domestic expenditure 84 Statistical Appendix Table 10 The North Sea Economy 1971 1972 1973 1974 1975 1976 1977 1978 Volume at 1970 prices Exports NX 79 115 125 147 179 301 Operating imports NM 16 23 25 30 35 54 Investment NI 73 105 95 142 268 340 546 743 95 127 309 295 l974values Exports NX 108 147 153 161 301 823 1893 2766 Operating I imports NM 23 33 39 50 59 92 164 224 Gross trading profits GTP 85 114 114 111 242 731 1729 2542 Total revenue NTAX 14 19 19 20 38 112 494 1215 Net trading profits NTP 71 95 95 91 204 619 1235 1327 IPDto UK IPD abroad Investment IUK 22 30 30 28 76 279 lA 49 65 65 65 128 340 NI' 110 161 178 345 650 832 569 424 666 903 772 756 Notes and definitions The following notes explain how the figures in the tables have been calculated. The definition and unit of measurement of each variable is given in the notes on the table in which it appears. For explanation of items in the summary tables, reference should be made to notes on the relevant main table. Table l GDP, Employment and Unemployment The figures for gross domestic product and productivity in this table are on a North Sea exclusive basis. Gross domestic product of the North Sea economy is defined as exports from the North Sea to the UK and the rest of the world minus all operating imports to the North Sea, and for each year this sum is subtracted from the Blue Book definition of GDP to give the series shown. Past movements in GDP, employment, unem- ployment and productivity are then analysed as described below in order to construct par series for those variables, i.e. how they might have behaved if a constant pressure of demand (defined as a 2~% rate of unemployment) had been maintained throughout. The par figures for the future are constructed using estimates of changes in the labour force and an assumption about trend growth of productivity. Forecasts of actual employment and unemployment depend on the assumed actual path of GDP. Blue Book basis figures for GDP shown in other tables are obtained by adding back projections of North Sea exports net of operating imports (measured at constant prices). GDP Gross domestic product at 1970 factor cost, excluding the North Sea: compromise index linked to 1970 expenditure estimate, less exports from the North Sea net of operating imports to the North Sea (see Table 10). (£1970m) U Unemployment: arithmetic mean of UK fourthquarter seasonally unadjusted monthly figures (excluding school-leavers and adult students) (thousands). E Employment: employees in employment plus HM forces plus employers and self-employed; seasonally adjusted UK December figure (thousands). Actual employment, E, and unemployment, U, are adjusted for their lagged response to changes in output to obtain the equilibrium levels of employment and unemployment which could be sustained, with a given labour force, if the existing demand pressure persisted. These equilibrium levels of employment and unemployment are estimated as simple weighted averages of 85 Economic Policy Review current and lagged actual values: E~ = 0.875Et + 0.125Et-1 1.1 1.2 Par series for GDP, unemployment, employment and productivity, GDP*, U*, E* and P*, are then obtained for the past from relationships between their respective deviations from par 0): E' GDP) ~ E* (GDP* 1.3 II U - U* = 0.4 (E* - E) 1.4 U* = 0.025E* 1.5 where~ increases smoothly from 0.52 in 1960 to 0.76 in 1972, and is assumed to remain constant thereafter, implying increased responsiveness of employment, and thus also unemployment, to fluctuations in GDP. Par productivity (£ thousand, 1970 prices) is defined by P* = GDP* /E* 1.6 1.1 to 1.6 are solved to obtain values of E*, GDP* and P* for 1961, 1965, 1969 and 1973; other past values are obtained by interpolation or extrapolation. E* is projected to 1978 taking account of labour force pro- jections in the Department of Employment Gazette, April 1974 and P* is assumed to grow at an annual rate of 2.65% from 1973 onwards. 1.6 is then used to obtain future par GDP, so that, given an assumption for the future path of actual GDP, 1.1 to 1.5 can then be solved for future equilibrium and actual employment and unemployment. Table 2 Public Expenditure (£1970m) CG IDG Public authorities' current expenditure on goods and services Public sector gross fixed capital formation in dwellings IKG. Other public sector gross fixed capital formation IG Total public sector gross fixed capital formation IG = IDG+IKG G Total public sector expenditure on goods and services (excluding public sector stockbuilding) G=IG+CG No adjustments for the pressure of demand, etc. are made to the series for public expenditure, since the volume of resources absorbed by the public sector in the categories defined above is assumed to be the same under par as under actual conditions. For 1975 onwards alternative projections are made for IKG, on the (I) For 1974 a special adjustment was made to take account of the effects of the three-day week in depressing output for a temporary period early in the year. assumption that, in view of the recent sluggish behaviour of private investment during expansionary phases, any success in reflating the economy by 1978 will entail increased government investment. The forecasts for public expenditure are based on the White Paper published in January 1975 (Cmnd. 5879). Table 3 Gross Fixed Capital Formation Estimates of" par GDP from Table 1 are used to construct and project par series for various components of capital formation: given these par projections, actual series are then projected to correspond with the alternative projections of GDP shown in Table 1. (£1970m) IDP Private gross fixed capital formation in dwellings IKP Other private gross fixed capital formation IG Public sector gross fiXed capital formation (see Table 2) I Total public and private gross fixed capital formation I=IDP+IKP+IG Q GDP at factor cost (Blue Book definition, i.e. inclusive of North Sea) Q* Par GDP at factor cost (Blue Book definition). Hence Q* - Q = GDP* - GDP since no adjustments for demand pressure are made to North Sea data. Par series for past years are calculated by: IDP* = IDP+0.37 (Ml* - MI) -1 - 112.0 {MIR*-MIR)_1 3.1 where IKP* = IKP+0.136 (GDP*-GDP) + 0.140 {GDP*-GDP)_1 -0.098 (GDP*-GDP)_2 3.2 MI = annual net inflows of funds to building societies {£1970m) MIR = current borrowing rate on new mortgages(% p.a.) MI* =par net inflow, i.e. that inflow received by the building societies when the ratio of their deposit rate to Bank Rate/Minimum Lending Rate is equal to unity. MIR* = trend value of MIR For projections, IDP* is assumed to grow at about 2.8% per annum from 1976 to 1978, after remaining flat in 1975. Future IDP is then obtained from 3.1 with a projection for the combined effect of the two financial terms. The equation used for IKP* is: IKP* = -3454+0.136 GDP*+0.140 GDP*-1 3.3 -0.098 GDP*_ 2+PS+NI where PS is private investment in the steel industry and NI is investment in the North Sea {both treated as exogenous). This equation underpredicts IKP* in 1974 by some £200 million, which reflects the recent sluggishness of private investment in response to increases in 86 Statistical Appendix output. The projections given by equation 3.3 have therefore been adjusted so as to assume that the depression of private investment is progressively eliminated by 1978 (except in the deflation forecast where private investment is assumed to remain abnormally depressed). Alternative forecasts of IK.P conditional. on different GDP assumptions are solved from equation 3.2. Table 4 Stockbuilding (£1970m) S value of physical increase in stocks and work in progress H end-year value of stocks and work in progress H=H-I+S A preliminary series for par stocks is given by H*=H+0.3045 (GDP*-GDP)+0.0951 (GDP*-GDP)-1 4.1 A logarithmic trend is fitted through the par stock- output ratio series for 1962-74 implied by 4.1, and extrapolated backwards to 1960 and forward to 1978; this trend series is used to obtain a final series for par stocks, from which par stockbuilding is inferred by taking first differences. 4.1 is then used to obtain future actual stock levels, and thence actual stockbuilding, conditional on the projection of actual GDP. Tables 5, 6, 7 Trade and payments These tables show historical series and projections for the main components of the current and long-term capital accounts of the U.K. balance of payments. A Balance of trade Tables 5 and 6 show actual past series for the balance of trade in goods and services. X Exports of goods and services at 1970 prices (£1970m) M Imports of goods and services at 1970 prices (£1970m) x' Exports of goods and services at current prices (£m) Imports of goods and services at current prices (£m) PX Price deflator for exports (1970 = 1.000) PX=X/X PM Price deflator for imports (1970 = 1,000) PM=M7M TT Terms of trade (1970 = 1.000) TT=PX/PM BT Balance of trade on goods and services at current prices (£m) Table 6 shows volume series (£1970m) and deflators (1970 = 1.000) resulting from the disaggregation of total imports into seven categories: FDT Food, drink and tobacco FU Fuels BM Basic materials SF Semi-finished manufactures FM Finished manufactures AC U.S. aircraft SV Other (mainly services) Corresponding deflators are shown with prefix P. The first stage in the analysis of the balance of trade is to estimate the trend balance of trade for the past by adjusting export and import volumes and deflators for deviations from trend in GDP, world trade and relative costs. This involves the following exogenous variables: WT World trade (not shown): the sum of the exports of goods and services at 1970 sterling values (£ million) of the UK and six major exporters- Canada, France, West Germany, Italy, Japan, U.S.A. (£1970m) UC (see Table 8) UK unit labour costs in manufacturing (average hourly earnings divided by trend productivity) including adjustment for the effect of indirect taxes and subsidies on exports (1970 = 1.000) RD UK relative costs in domestic currencies, i.e. UC relative to a geometric index of the unit costs (expressed in their own currencies) of the other six countries named above, using weights obtained from each country's share in WT in 1970 (1970 = 1.000) RX UI( exchange rate (U.S. dollars per pound sterling, 1970 = I) relative to a geometric index(constructed similarly to RD, using the same weights) of the exchange rates of the other six countries (1970=1.000) RC UK relative costs corrected for exchange rate changes (1970 = 1.000) RC=RD.RX Trend series for these exogenous variables are logarithmic trends fitted through actual data for 1966-72, and then extrapolated forwards and back. Trend series for export and import volumes and deflators are obtained by correcting actual series for deviations from trend (trend series are denoted by a circumflex). 1. Export volumes are adjusted for world trade and UK relative costs: ~; _x [. t (Rc) o.75t-u ]-o.475{wr\ -o.5 Wf-X Wf-X u;n1960 RC WT) 5·1 2. The volumes of imports of fuels, basic materials and semi-finished manufactures are adjusted for deviations of GDP from par: FU = FU+0.02 (GDP*- GDP) 5.2 BM = BM+0.04 (GDP* - GDP) 5.3 SF= SF+0.1 (GDP*- GDP) 5.4 Finished manufactures are adjusted for the pressure of demand by: IA - {_GDP*\ 4.0 FM - FM \GDP 5.5 No adjustments for variations in GDP were made in the other three import categories - food, drink and tobacco, services and U.S. aircraft. 3. The deflators for exports and imports (excluding U.S. aircraft) are adjusted for domestic inflation, relative costs and world trade: p; p (oc fRc\ "2 J"1 f& -1 (R'c -1\ "2] 1 <-"tl (vrr) "3 I I uc \P.C} luc -1 \Rc -1/ WT 5.6 87 Economic Policy Review The coefficients used in 5.6 are £X} £X2 £X3 PX 0.73 -0.52 0 PFOT 0.50 -0.65 1.0 PFU l.O -1.0 0 PBM 1.0 -0.47 1.3 PSF 1.0 -0.63 1.0 PFM 0.76 -0.80 0 PSV 0.80 -0.23 0 The next stage is the projection of the trend balance of trade by separate projections of its various components. Of the exogenous variables, projected par GOP is taken from Table 1, and Wr, tfc and RC for 1975-78 are extrapolated on their respective trends. In principle, we would normally project trend series for the endogenous variables (export and import volumes and deflators) by fitting trends to the adjusted past series obtained from 5.1 to 5.6 and extrapolating these trends into the future. However, events in the world economy in the last two years (such as the speculative boom in commodity prices and the increase in the price of oil) have caused substantial upward movements in import prices whose deviations from trend cannot be solely explained on the basis of off-trend movements in UK costs, relative costs and world trade. Moreover, the boom in commodity prices has effects not only on the price of direct imports of commodities, but also on the prices of UK exports and imports of finished manufactures which make substantial use of basic materials and semi-finished manufactures as inputs to production. In order to project trend series for all the deflators so affected it is necessary, therefore, to take a view as to the behaviour of these abnormal off-trend elements over the future period: the table below shows the percentage in 1974 by which the adjusted deflators for food, basic materials, semi-finished and finished manufactures, and exports obtained from 5.6 exceed the extrapolated value of a logarithmic trend fitted between 1966 and 1972 (the last year before the boom in commodity prices), together with the assumed time-path of this percentage up to 1978. FOT BM SF FM X 1974 36 53 36 5 13 1975 39 35 32 4 11 1976 23 2 13 28 1977 18 0 11 04 1978 16 0 11 01 The trend fuel deflator is projected on the assumption that the price of oil in real dollar terms is the same on average in 1978 as in 1974; the projection for fuel volume assumes that some degree of energy-saving is achieved, in the sense that total energy consumption will be less in relation to GOP than would be expected on the basis of past relationships.( 1) Projected North Sea production of oil and gas is then subtracted from total energy requirements to obtain a projection for fuel imports. Having constructed the trend balance of trade for both values and volumes, together with the trend exogenous series for costs and world trade, projections (l) See Chapter 4, Appendix 1. for the actual balance of trade as shown in table 7 are then obtained by using 5.1 to 5.6 to incorporate the effects on exports and imports of assumed future deviations from trend of actual costs and world trade. The assumptions for world trade and costs are as follows: 1. World trade on our definition grows by ~% in 1975, and then by 3, 6~ and 11% in succeeding years up to 1978, by which time (since the past trend growth rate of world trade is 9.1%) actual world trade would be some 13% below trend. 2. Except in the devaluation projection, the UK's relative cost position (as measured by RC) deteriorates by 1% per annum between 1974 and 1978. In the devaluation projection, a 15% reduction in RC, maintained from 1975 to 1978, is superimposed on this path. 3. As can be seen from 5.1 to 5.5 above, the projected volumes of exports and imports depend only on future GOP, relative costs and world trade, and not on UK inflation per se. Given the exogenous assumptions for these three items to yield export and import volumes, together with the projections for public expenditure and capital formation shown in tables 2, 3 and 4, future consumption can be inferred as a residual. As explained under table 8 below, this consumption projection is used to obtain a projection for UK inflation, and in particular for unit labour costs, UC. It is then .assumed that the exchange rate (RX) is always adjusted to yield the series for RC under (2) above. Having done this we can project current price series for the balance of trade which are mutually consistent with the inflationary implications of the overall resource balance - one determinant of which is the balance of trade in volume terms. Tables 7A, 7B, 7C and 70 show the main items.of the actual trade balance for four alternative projections: import restriction is the outcome of measures designed to restrict the trend (i.e. unadjusted) growth of imports of fmished manufactures to 8% per annum from 1974 onwards, compared with an unrestricted trend growth rate of 18~% which is used in the other projections. To compare alternative projections allowing for the fact that they imply quite different future inflation rates, Table 7 also shows BT where Balance of trade on goods and services at 1974 export values (£1974m) PX1974 BT = BT PX 5.7 The summary tables show the oil deficit (00) for 1973 to 1978 inclusive: this is calculated as minus the difference between the actual value of fuel imports and what the value of fuel imports would be if the fuel deflator for 1973 onwards continued on its 1966-72 trend. This series is then converted to 1974 exportvalues as in 5.7. B Balance of payments: non-trade items For each projection the lower half of table 7 shows those items which, in addition to the balance on goods and services obtained as described in (A) above, are necessary to project the current and basic balances. The series used for domestic costs (UC) and foreign costs in sterling terms (UC divided by RC) in making projections of the various items below are those which are 88 Statistical Appendix generated by our model of inflation (see table 8) as part of the overall outcome of each projection. Except where otherwise specified, all trends referred to in this section are fitted logarithmically to the period 1965-73. To facilitate comparability between the different projections, all the items in the lower half of the tables, after being obtained in current price terms as described below, are expressed in 1974 export values by multiplying each by the ratio of the current-year export deflator to the value of the deflator in 1974 (as in equation 5.7 above) in units of£1974m. 1. Interest, profits and dividends (IPD) (i) IPD credits: Past figures are converted into real terms, deflating by foreign costs, and the projected real trend for 1975-78 is converted back to current prices by multiplying by projected foreign costs. (ii) IPD debits (excluding IPD paid abroad from the North Sea): a real trend is projected and reflated as for credits, using domestic rather than foreign costs as deflator. (iii) IPD paid abroad fronf the North Sea: 'Calculation of this item is described in the notes to table 10. (iv) Additional IPD debits to finance balance of payments deficits: this item covers interest payments on the debts incurred to finance the unusually large deficits which have occurred since 1973. A "normal" deficit in real terms on the basic balance (defined below) is calculated for 1973 onwards as the average of the actual basic balance (deflated by domestic costs) for 1965-74 inclusive: this deficit is then converted to current prices by projected domestic costs, and additional interest for any given year is charged on the cumulative sum since 1973 of the differences between the normal deficit and the actual deficit on the basic balance. Half of these financing debts incurred in any one year are assumed to be denominated in foreign currency: this half is converted to foreign currency terms by multiplying by RX and cumulated from 1973. Interest on this cumulated debt is charged at 8% and then reconverted to sterling. Devaluation thus has the effect of increasing the interest liability corresponding to a given pattern of deficits. The remaining half of the debt is assumed to be denominated in sterling. and interest is charged in each year at r% on the cumulated debt from 1973 according to the following formula: Pet rt = 5 +0.5 ( -PCt-1 - ' X 100 5.8 where Pet is. the level of the consumer price index in year t. 2. Transfers (T) (i) Government transfers: foreign aid and net EEC contributions. (ii) Private transfers: real trends are projected separately for credits and debits, using domestic costs as deflator. 3. Current balance (CB) The current balance is the sum of the balance on goods and services, interest, profits and dividends (net) and transfers (net): CB = BT + IPD + T 4. Long-term capital (LTC) (i) Private credits (excluding North Sea): this item is projected to grow at 5% per annum in real terms from 1973, and reflated by domestic costs. (ii) Private debits(excluding Euroborrowing): a real trend is projected as for IPD credits, using foreign costs as deflator. (iii) Foreign investment in the North Sea: a projected series expressed in 1974 prices is converted to current price terms using a simple average of foreign and domestic costs as the appropriate deflator. (iv) Official long-term government capital: this is assumed to be £250 million per annum in 1974 prices, and is revalued by projected foreign costs. (v) Autonomous overseas investment in UK public sector: this is assumed to be £50 million per annum is constant prices from 1975 to 1978, and revalued by domestic costs. Our definition of long-term capital (net) is the sum of items (i) to (v) (with appropriate signs). Solicited overseas investment in the UK public sector, which is mainly a financing item but included in the official definition of long-term capital, is omitted from our definition, and hence also omitted from our definition of the basic balance. 5. Net trade credit (NTC) This is projected by the formula NTCt = (M't Omt-M't-1 Om,t-1)- (X't Oxt- X't-1 Ox,t-1) 5.10 where X't. M't are respectively exports and imports of goods and services at current prices in year t. The coefficients Omt and Oxt are projections of a linear time trend fitted through the respective actual series for 1967-73 inclusive. 6. Capital transfers (not shown) This item is worth -£80 million in 1974, and is assumed to be zero thereafter. 7. Basic balance (BB) This is the sum of items 3, 4, 5 and 6 above, and thus on our definition excludes solicited overseas investment in the UK public sector: BB = CB + LTC + NTC + capital transfers 5.11 Table 8 Real wages and inflation The real resource implications of our analysis are here used to generate alternative projections of inflation. For each conditional forecast we have projections of GDP at factor cost (Tables 1 and 9), public expenditure (Table 2), fixed capital formation (Table 3), stockbuilding (Table 4) and the balance of trade on goods and services (Table 7). 89 Economic Policy Review C Consumers' expenditure (£1970m) A Adjustment to factor cost (£1970m) R Residual error (compromise less expenditure estimate ofGDP) (£1970m) AC Average indirect tax rate (net of subsidies) on consumers' expenditure. Estimates for consumers' expenditure and the adjustment to factor cost are derived from the following relationships: C + CG + I + S + X- M - A + R = Q 8.1 AC = -0.0177 + 0.2650 ~ + 0.0004t 8.2 (1960: t= 1) A = AC.C + 0.0761 CG + 0.07611+ 0.0416X 8.3 where R is extrapolated on a linear trend fitted to past values. Thus forecast private consumption is derived as a residual use of resources. Implicitly it is assumed that fiscal policy is adjusted to ensure that the required level of consumption is in fact generated. This makes it possible, on further assumptions about direct taxation and the distribution of personal income, to infer real earnings and hence the required level of consumer prices relative to money earnings. Finally, given assumptions about pay settlements, the inflation of consumer prices and money earnings can be estimated for future years. PDI Real personal disposable income (£1970m) YW Real disposable income from employment (£1970m) YG Real disposable income from grants (£1970m) EE Equivalent full-time adult male employment (thousands) WD Average real disposable earnings per person (£1970 p.a.) Total personal income is solved from the consumption function 1\ A A C- C = 0.7143 (PDI- PDI) +0.2 (PDL1- PDL1) 8.4 AA where C and PDI are extrapolations of fitted logarithmic trends. Income from grants is assumed to vary slightly relative to income from employment as a result of fluctuations in the rate of unemployment: YG = (0.174 + 0.67 D;E) YW 8.5 where U, E are estimates of the average levels of unemployment and employment in the year. Other personal income (from self-employment, interest, profits and dividends, etc.) is assumed to maintain a fixed share in total disposable income as it has for a long period in the past. Thus: YW +YG = 0.805 PDI 8.6 Equations 8.4 to 8.6 can be solved for YW. Average real disposable earnings per person is then given by: WD = 1000. YW/EE 8.7 where EE is derived from projections of total employ- ment,E, adjusted for changes in demographic composition. To estimate pre-tax earnings and derive the rate of inflation, assumptions must be made about fiscal drag and pay settlements. t Average tax rate on gross income from employment (including employers' and employees' contributions) W Average real pre-tax earnings per person (£1970 p.a.) W' Average pre-tax money earnings per person (£p.a.) PC Price deflator for consumers' expenditure (1970=1.000) It is assumed that in future fiscal drag will be partially offset to secure an effective marginal tax rate on average money earnings of 30%. Thus: t = 0.30- 0.20/W' 8.8 Then, using the identities W(l-t) = WD 8.9 and W' = W.PC 8.10 we derive the relationship between increases in consumer prices and money earnings necessary to ensure that posttax real earnings, WD, match the assumed availability of resources. This relationship can be expressed in the form: PC PC_ 1 (1- t) w' WD_1 (1- L1) W'-1 WD 8.11 Finally, an assumption must be made about money pay settlements which determine the mcrease in gross money earnings. We assume in effect that this will be determined by settlements aimed at compensation for past price increases plus some real increase, but that in any event even with falling consumer prices there would still be an effective minimum increase in money earnings of about 3% a year. This assumption is formalized in the relation ·T"'J ,.~-· =!03 [·.s (" r;:(~_.) 1&12 which is approximately equal either to <:W' W'-1 = 1.03 when PC PC_ 1 1 W' W'-1 = 1.03 0.6 when PC PC> 1 -1 In this relation W* represents the average; level of gross real earnings achieved at pay settlements (before it is eroded by subsequent inflation). Most of our forecasts assume that W* will grow at 5~% per year, in line with 90 Statistical Appendix its movement in 1970-74. The 'low inflation' forecast assumes W* will grow at 4~% per year. Given values for W*, forecasts of consumer prices and money earnings are solved from equations 8.11 and 8.12. These forecasts are used to project unit labour costs, UC, for use in Table 7. Table 9 Real National Income Real national income is a measure of the total resources available for domestic expenditure (including consumption and investment, both public and private) given a constant balance of payments target on current account. It is measured in terms of the purchasing power of domestic output, and can be directly calculated as gross national product at current market prices divided by the deflator for domestic expenditure (PDE). Differences between real national income and gross national product in real terms are determined by relative movements in the domestic expenditure and GNP deflators i.e. by movement in the terms of trade. (£1970m) Y Real national income at market prices DE Domestic expenditure at market prices CB Current balance of payments divided by PDE The right-hand side of Tables 9A and 98 shows the breakdown of real national income between these items: the discrepancy between their sum and the fi~re shown for Y corresponds to the residual error (R) between compromise and expenditure estimates of GDP. For future years the domestic expenditure deflator is assumed to grow at a rate ~%per annum faster than the consumer price index PC (see Table 8). The left-hand side of the table breaks down the difference between gross domestic product at factor cost and real national income at market prices into its various components. (£1970m) GDP Gross domestic product excluding the North Sea QNS North Sea output at factor cost TIE Terms of trade effect NFY Net foreign income and transfers from abroad: interest, profits and dividends (net) plus transfers (net) (see Table 7) deflated by PDE. A Adjustment to factor cost. On our definitions, Y = DE+CB +R 9.1 = GDP + QNS + NFY + A + TTE 9.2 while GDP+QNS = DE+X-M-A+R 9.3 and - X'-M' CB = PDE + NFY 9.4 From these relations it follows that we must measure the terms of trade effect as TTE = x(PPXDE -1) PM -M { PDE 9.5 Table 10 The North Sea economy This table summarizes the main items in North Sea accounts for 1971-74, together with forecasts for 1975-78 conditional on the assumptions of the forecast for import restriction with low inflation. (£1970m) NX Volume of North Sea deliveries of oil and gas NM Volume of North Sea operating costs Nl Volume of fixed investment in the North Sea (including exploration and development costs) Value figures are expressed at 1974 values by dividing current price estimates by the domestic expenditure deflator relative to 1974. (£1974m) NX' Value of North Sea deliveries NM' Value of North Sea operating costs Nl' Value of North Sea investment GTP Gross trading profits NTAX Total government revenue from the North Sea NTP Trading profits net of tax IUK Profits paid to UK net of tax lA Profits paid abroad net of tax By definition, GTP = NX' - NM' 10.1 NTP = GTP-NTAX 10.2 IUK + lA = NTP 10.3 The estimates assume no state participation in North Sea operations since the timing of this is uncertain (see Chapter4). Government revenue is assumed to comprise royalties at 12~% of the value of deliveries (NX') plus PRT and Corporation Tax at the following average rates, charged to trading profits net of royalties: 1975 1976 1977 1978 0 1.4% 17.2% 39.6% Profits net oftax are assumed to be allocated between the UK and rest of the world in the following proportions: (foreign share) 1975 1976 1977 1978 53% 55% 54% 68% · . 91  Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Statistical Appendix Creator An entity primarily responsible for making the resource Martin Fetherston Source A related resource from which the described resource is derived Economic Policy Review, Volume 1, pages 62-91