The growth rate of gross domestic product may well exceed 5 per cent in 1988. Investment demand is now rising very rapidly, reinforcing the strength of consumer spending. Output, in the manufacturing sector at least, is approaching the limits set by capacity. Partly for that reason imports have risen much faster than domestic production and inflation is beginning to accelerate. The authorities have responded by raising interest rates.

This time last year the general expectation was that the growth rate would slow down markedly, particularly as the stock market had just collapsed. In the event demand and output have both continued to rise very fast. Now the general expectation is, again, that the growth rate is about to fall sharply, this time because of the rise in interest rates during the summer. Clearly this view needs to be examined critically.

The upturn in economic activity that has been clearly visible for the last year in both Japan and the US now appears to be spreading to Europe. The factors affecting the upturn are diverse, but it appears to be investment led, at least in the US and Japan, and to a lesser extent in Germany and the UK. Chart 1 plots the investment to income ratio for the major four economies over the past, along with our forecast for the medium term. The investment-income ratio has fallen in France and Germany over the past ten years, but it has reached relatively high levels in Japan in the last four years.

The forecast presented in chapter 1 was produced with a new version of the Institute's UK econometric model. Model 11 contains a number of new features. The largest number of innovations occur on the ‘supply side’ of the model, including new equations for manufacturing employment, investment, exports, imports prices and average earnings. Two equally important developments involve the interaction between company sector liquidity and decisions about real variables, and between the flow of consumer credit and personal consumption. There are new equations for the exchange rate, unemployment and a host of more minor variables. In all about half of the model's equations have been re-estimated, and 30 new variables added to the model. These changes constitute the largest and most significant development of the Institute's UK model since the introduction of rational expectations with Model 8. This note summarises these changes, and discusses their implications for various standard policy simulations. A full model listing is also published by the Institute.

A few years ago, comparisons were being made between the recession of the early 1980s in Britain and that of 50 years earlier, in the 1930s. The latter was followed by a recovery in output which lasted over five years. A new recession appeared in 1938, but it was swiftly overtaken by growing rearmament and the outbreak of war. On this occasion, the recovery of output has already run for six years and, though there may well be more to come, we now have sufficient figures to make a worthwhile comparison of recession and recovery in the two periods. It is the strong similarity in the strength and depth of the two recessions which makes the comparison of the subsequent recoveries a useful measure of the success of recent economic performance. In terms of annual data 1929 and 1979 were the peaks of the preceding expansion, and we take advantage of the coincidence of the last digit. Those variables expressed in index number form are taken as 100 in the years 1925 and 1975, and we characterise the periods 1925-37 and 1975-87 as Then and Now. Data for Then are taken mainly from Feinstein (1972) and for Now from Economic Trends and other current official sources.

The rise of microcomputer technology in the last decade has introduced changes in the way tasks are carried out at both the technical and the organisational level in manufacturing industry, with consequential changes in the need for skills and training for both mechanical and electrical craftsmen. Both in Britain and in France the relevance of traditional and narrow concepts of skill (the craftsman highly skilled in one set of operations) is being questioned, and in both countries changes are taking place in the way young people are prepared for mechanical and electrical work.

The idea that economic developments can affect births is an old one, going back to Malthus' Essay on Population in the early 19th century. In more recent times, the economic analysis of fertility was resurrected by Becker (1960) and developed by Easterlin (1980), Willis (1973), Becker (1981) and others. This article reports on an application of this economic approach to the analysis of fluctuations in births in Britain during the post-war period, building on previous work by De Cooman, Ermisch and Joshi (1987).