SUMMER FORECAST IN BRIEF

• sound public finances. The objective is to bring the public sector borrowing requirement (PSBR) back towards balance over the medium term.

• firm control of public spending. The aim is to reduce public spending as a share of national income over time.

• making the economy work better. Growth and job prospects are improved by structural policies which help markets work better, foster competition, keep regulations to a minimum and improve the climate for enterprise.

Summary of economic prospects

                                                          
                                        Forecast

                                                             
                            ----------------------------------

                              1994          1995         1996

Gross domestic product (1)      4             3          2 3/4

Underlying inflation (2) 
(fourth quarter)                2 1/4         3          2 1/2

Current account 
(pounds billion)                -1 3/4       -2             -1

PSBR (financial year,
pounds billion)                 35 1/4       23 1/2         16

GGE(X)/GDP
(financial year, %) (3)         42 3/4       41 3/4      40 3/4

(1)  Percentage change on previous year
(2)  RPI excluding mortgage interest payments
(3)  General government expenditure excluding privatisation
proceeds and lottery financed spending, and including
interest payments net of receipts

• The economy grew by almost 4 per cent in 1994. Exports played a leading role, but investment and consumers' expenditure rose too.

• Underlying inflation remained below 3 per cent in every month of 1994, the best result since the early 1960s.

• Unemployment fell by about 1,000 every single day, ending the year down by 361,000. Labour Force Survey figures show that almost 300,000 new jobs of all kinds were created in 1994.

• The current account deficit fell sharply, and was very small in relation to GDP. Export volumes rose more quickly than imports and net income from overseas investments was strong.

• Government borrowing fell substantially; public spending also fell as a share of GDP. The PSBR was 10 billion pounds lower at 35 1/4 billion pounds in 1994-95. General government expenditure as a proportion of GDP declined from 43 1/2 per cent to 42 3/4 per cent.

PROSPECTS FOR 1995 AND 1996

• Growth in the UK is expected to continue to outpace growth in G7 countries as a whole in 1995 and 1996.

• Growth is slowing to a more sustainable rate. GDP is forecast to rise by 3 per cent in 1995 and 2 3/4 per cent in 1996.

• Net exports and investment are both expected to grow faster than the economy as a whole in 1995; while in 1996 consumers' expenditure is forecast to strengthen markedly, rising by 3 per cent.

• Underlying inflation is set to remain low. It is likely to rise to 3 per cent by the end of 1995 before falling back during 1996 to 2 1/2 percent by the end of that year. The temporary rise mainly reflects higher import prices as they feed through the price chain.

• Real personal disposable incomes are set to rise by 1 1/2 per cent in 1995 and 2 per cent in 1996.

• The current account is predicted to remain broadly in balance throughout, helped by the highly competitive position of British exporters and continuing good growth in UK export markets.

• Public spending (expressed in terms of general government expenditure) is expected to fall as a proportion of GDP from 42 3/4 per cent in 1994-95 to 40 3/4 per cent by 1996-97.

• The PSBR is expected to fall sharply to 23 1/2 billion pounds in 1995-96 and 16 billion pounds in 1996-97 helped by the healthy growth of the economy, the impact of earlier tax increases and public expenditure restraint.

Note: The full Summer Economic Forecast 1995 is published by HMSO, ISBN 0 11 560064 7, cost: 6.50 pounds.