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Briefing Paper: Non‐Manufacturing Investment and UK Aggregate Demand
Author(s) -
MILNE ALISTAIR
Publication year - 1991
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.1468-0319.1991.tb00648.x
Subject(s) - boom , economics , investment (military) , scrutiny , stock (firearms) , aggregate demand , consumption (sociology) , recession , business cycle , monetary economics , market economy , labour economics , macroeconomics , engineering , monetary policy , mechanical engineering , social science , political science , law , environmental engineering , sociology , politics
The standard view of business fluctuations gives the leading role to investment, in both fixed capital and stocks, which raises aggregate demand in boom and reduces it in slump. The recent behaviour of the UK economy seems to have been a particularly marked departure from the standard model. Movements in personal consumption have played an unusually important role in both the rapid increase of demand from 1986 to 1989 and in the current recession. Stock investment, owing to improvements in the technology of stock control, is no longer a driving force. Manufacturing investment, while rising during the boom, contributed relatively little to increasing demand. The conventional wisdom now has it that recent UK experience is that of a consumption driven business cycle. This Briefing Paper argues that this down‐playing of the role of investment has been overdone. What has deceived the eye is the concentration on manufacturing. Investment did make a very large contribution to the recent boom, with the biggest increases in investment undertaken by non‐manufacturing industry: a component of demand which attracts little regular scrutiny and less understanding. The textbook model still applies to the UK.