The London Business School with Gower Publishing

Abstract

The economic recovery, which was gathering momentum in the second half of last year, was stopped in its tracks first by the US‐led resurgence of interest rates last A utumn, and then by the harsh winter. There were some encouraging signs of recovery again this Spring, but the latest indicators, most notably from the recent CBl Survey, are disquieting. This time last year we took the view that a spontaneous recovery would occur as destock‐ing came to an end. That forecast has proved correct on demand but over‐optimistic on output ‐ a very high proportion of the extra demand was met by imports. The scope for further spontaneous recovery is now limited and our growth forecast, especially for 1983, depends on the authorities taking some reflationary action. It is now being debated how and when such reflation should take place ‐ there is talk of an Autumn Budget. In effect the authorities have to decide a) whether there is scope for reflationary fiscal action within the PSBR guidelines of the Medium‐Term Financial Strategy; b) if so, whether such action is more appropriately taken in the A utumn or next Spring; c) if in the meantime interest rates could be brought down while respecting the MTFS targets.