• • The economy will grow by 3.2 per cent in 2000 and 2.3 per cent in 2001.

• • Manufacturing will enjoy its best year since 1994, with output expanding by 2.4 per cent in 2000.

• • Inflation will stay just below the government's 2.5 per cent target in 2000 and 2001.

• • The current account deficit will widen to £17 billion in 2001.

• • The Prime Minister's new objective to raise health spending as a proportion of GDP to the EU average by 2005 can be met without breaking the golden rule.

After last year's very modest slowdown in growth, the UK economy now appears to be on the brink of a period of much more rapid expansion. Even those sectors, such as manufacturing and construction, which had been stagnating, have picked up speed since the middle of last year and there are signs that all sectors of the economy will grow strongly this year.

The public finances were transformed in the second half of the 1990s as the economy recovered from recession, a range of fiscal measures were implemented and there was unexpected buoyancy in revenues from existing taxes. The budget surplus that this produced looks set to continue for a number of years, provided that the economy does not suffer any major unfavourable shocks. Indeed, the underlying budgetary position is sufficiently strong that it would take a serious adverse macroeconomic shock to raise the deficit to threatening levels.

The short-term economic outlook has improved significantly in nearly all parts of the world economy over the past year. Growth has continued at a rapid pace in the North American economies, helped by the renewed vigour in equity prices in recent months and further strong growth in labour productivity. GDP in the United States is estimated to have risen by over 4 per cent in 1999, for the third year in succession. We expect to see further growth of 3¾ per cent this year. The European Union economies have embarked on a cyclical upturn, helped by accommodative monetary policies and the impact of improved external demand.

This article considers the economic case for UK membership of EMU. Traditional optimum currency area (OCA) analysis provides only a weak case for membership: the UK is located among the periphery and not in the core. Considerations of the possible costs of isolation (the risks of trade discrimination and the dangers of a volatile currency) together with some pertinent qualifications of OCA analysis (the possible endogeneity of the OCA criteria) serve to strengthen the case for joining. Whilst it is not overwhelming, the final verdict is positive.

Using data from two cohorts of graduates, this article examines three aspects of over-education. First, using three new measures, we present an estimate of graduate over-education in the UK. We find that the scale of over-education varies with measurement techniques, with weak correlations between the three measures. Second, across the three measures we estimate the effects of over-education on earnings and job satisfaction. The effects of over-education on earnings and job satisfaction are similar, not withstanding the measures identifying different individuals as being over-educated. One finding is that the effects of being over-educated are more significant for female graduates than male, although it is ambiguous which gender is more prone to over-education. Third, we examine another source of ambiguity regarding over-education, namely that firms upgrade the tasks they allocate to their employees who appear to be over-educated. We find that, for graduates, job quality for the over-educated is not converging to that of the appropriately educated.

In 1998 the Government set out its expenditure plans for the remainder of the current Parliament in the Comprehensive Spending Review. Announced within this were large increases in expenditure on education, health and capital spending with the objective of meeting the Government‘s manifesto pledges. Yet as the recent report by the Treasury on the UK's trend rate of growth states, the expenditure plans of the CSR may also help to raise the growth potential of the economy, although no quantitative assessment of this was made. Using evidence from the empirical growth literature, this article examines the possible effects of these policies on the long-run growth rate of the economy. In general the results from the empirical literature are non-robust, but by conducting a very different style of review we are able to identify several studies from which to determine what these effects might be. Using a stylised version of the CSR we estimate that it may raise the long-run growth rate by as much as 0.1 of a percentage point per annum, although there is some sensitivity to the underlying assumptions. This appears to confirm the likelihood of modest upside risk to the Treasury's estimate of trend growth.

This article analyses the properties of five leading macroeconometric models of the UK economy, as revealed in four simulation experiments. These are carried out in a common operating environment that reflects the broad objectives of current policy — sound public finances and low inflation — by using feedback rules for income tax and interest rates. Developments in the structure of the models as revealed by the series of such exercises carried out during the lifetime of the ESRC Macroeconomic Modelling Bureau (1983–99) are described. The development of the research methods through which models' properties were elucidated and analysed is also reviewed.

A radical reform of National Insurance was implemented in April 1999. One objective of the reform was to stimulate job creation. This note analyses the effect of the changes in employers' contributions on employment. We find that the reform could stimulate the creation of about 200,000 jobs in manufacturing industries.