The latest budget was the clearest indication yet of the break which is occurring in the way in which economic policy has been conducted since the war. Against a background of falling output and rapidly rising unemployment (actual, as well as forecast) the Chancellor introduced a deflationary package. The last time unemployment reached ¾ million on an upward trend, in mid-1971, policy was already moving towards stimulation of demand, and this was the tendency on all previous occasions when the unemployment figures had been rising for any length of time. The different reaction this time is a measure of the seriousness with which the Chancellor views the balance of payments situation and, more especially, wage and salary inflation. Demand management policy is evidently now being used not to maintain a high and stable level of employment but as a bargaining weapon in an attempt to get some effective tightening of the social contract. Wages have risen much faster than prices over the past twelve months, evidence that the Trade Union side of the contract is not being kept. The government is therefore showing that it can no longer keep its part of the bargain and that it will not, through its fiscal and monetary policies, continue to validate a rate of wage increase between 20 and 30 per cent per annum. While this policy is pursued, unemployment must rise unless or until the inflation of incomes slows down.

It is now possible to say with greater confidence than three months ago that recovery in the world economy is on the way. The number of countries in which expansionary measures are being taken is steadily increasing and much of the weakness, particularly in the United States, appears recently to have stemmed from stock liquidations which may be in their final stages. At the same time, however, it has become clear that in February we were still underestimating both the depth and the duration of the recession, and even now it is hard to predict when the turning point will come (if indeed it has not already been passed).

Among the many factors that have contributed to the rapid growth of UK imports of manufactures over the last fifteen years or so, tariff reductions, both general and preferential, are usually mentioned as being one. Hitherto, however, the effect of all such reductions has not been quantified though some studies of the effect of EFTA membership on imports have been made. This article attempts to repair the omission by calculating the extent of the tariff cuts and by examining their effect on two broad groups of manufactures–semi-manufactures and finished goods.