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THE AUTUMN STATEMENT
Author(s) -
Currie David,
Dicks Geoffrey
Publication year - 1990
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/j.1468-0319.1990.tb00627.x
Subject(s) - treasury , interest rate , economics , inflation (cosmology) , stock (firearms) , monetary economics , geography , archaeology , theoretical physics , physics
The short‐term prospects for output are weaker than our October forecast suggested ‐ manufacturing output fell 1.8per cent in the third quarter and the CBI survey indicates a sharp decline in business confidence. This is reflected in the Treasury's Autumn Statement forecast of GDP growth this year of only 1 per cent followed by 0.5per cent in 1991. With inflation now passing its peak, there would be a case for lowering interest rates but this is not possible with the pound below DM2.90 ‐ the ill‐judged reduction in base rates on ERM entry combined with the challenge to Mrs. Thatcher's leadership has pushed sterling deep into its lower ERM band. The principal unknown in the Autumn Statement forecast is the level of interest rates which, in the Treasury's judgement, will be necessary to keep sterling at or close to DM2.95. The Treasury may envisage only a very modest decline in base rates to 13 per cent next year. This could explain why their forecast is relatively gloomier than ours; alternatively the Treasury's underlying view could simply be more pessimistic. Nevertheless we show that the gap between the two forecasts can be eliminated if we change a limited number of assumptions ‐ notably on interest rates, North Sea oil output, general government consumption and stock‐building.