Forecast Summary

Abstract

The economy has entered a growth recession but we do not expect an absolute decline in output. Consumer spending has belatedly responded to higher interest rates but the key to the short‐term outlook is the company sector whose financial position has deteriorated sharply. The response is likely to be a pause in the growth of investment and large‐scale destocking ‐ reminiscent of 1980‐1. But the contrast with the early 1980s' recession is as important as the similarity: it is the “sheltered” sector which will bear the brunt of the demand slowdown. Exports and thus manufacturing industry will be boosted by a competitive exchange rate, and this will provide a significant, though one‐off, improvement to the current account. The lower pound, actual and prospective, will hinder any reduction in inflation and it is not until 1992 that retail price inflation falls below 5 per cent.