For most of the 1980s the British economy has grown faster than the rest of Europe; this year the position is being reversed. The increase in output is expected to be about 3½ per cent this year in Germany, a little over 3 per cent in France and in Italy, as against about 2½ per cent in this country. Looking further ahead the gap may widen with growth of around 1 per cent a year in Britain, but 2 or 3 per cent a year in other major European economies.

The forecasts were prepared by Bob Anderton, Andrew Britton and Paul Gregg, but they draw on the work of the whole team engaged in macroeconomic analysis and modelbuilding at the Institute. Parts One and Two of the Chapter were written by Andrew Britton, Part Three by Bob Anderton.

Our recent forecasts have warned of growing inflationary pressures in the world economy. The policy response to these has been robust, and interest rates have risen markedly over the last year; consequently there are now signs that inflationary pressures are receding. Chart 1 illustrates the recent interest-rate developments, and chart 2 recent and prospective inflation rates for the major 4 economies. Oil prices have weakened over the last three months, and commodity prices, especially those for metals and minerals, have been falling.

We have adopted the practice of constructing our forecasts by assuming:-

1. (1) Exchange rates follow the open arbitrage path, with some allowance for risk factors which may change over time.

2. (2) Our model is an adequate description of the world economy, and that the views embedded in it are shared by participants in the market.

The Delors report on European Economic and Monetary Union proposed that fiscal as well as monetary policy should be subject to centralised control. The committee is concerned that individual governments would not feel constrained to observe fiscal prudence, and that some of the consequences of a fiscal expansion would fall on other members of the Community. In particular, if exchange rates between member states were fixed and interest rates on equivalent assets were the same everywhere, a fiscal expansion in one country would lead to a rise in prices everywhere, and some of the financial cost would be paid by the rest of the Community because the home country's balance of payments would deteriorate.

In the four years that have elapsed since the publication of the European Commission's White Paper on ‘Completing the Internal Market’ in June 1985 understanding of the issues involved in removing the various physical, fiscal and technical barriers to having a ‘single market’ in Europe has developed considerably. The public debate has gone through a series of phases, starting with scepticism, strikingly translated into enthusiasm and almost euphoria during 1988, to be replaced with serious concerns about many specific areas as general principles have come to be replaced by detailed proposals by the European Commission. The member states signed the Single European Act in 1986 for a variety of motives and it is often only when explicit proposals are tabled that the conflicting objectives and detailed implications become obvious.

Among the many recent endeavours of HM Government to improve vocational training is the creation of a body to bring coherence into Britain's so-called ‘jungle’ of vocational qualifications, spawned over the decades and centuries by a myriad of examining and award-granting organisations issuing qualifications at a variety of uncoordinated levels. For those familiar with the qualification systems of Continental Europe (hereafter ‘Europe’, for short), some doubts are nevertheless raised by the principles on which the new National Council for Vocational Qualifications (NCVQ) proposes to work; these doubts relate, not to details which can safely be left to technical experts for due resolution, but to matters of fundamental principle deserving wider consideration at the outset. We focus here on three issues: co-ordination of levels of qualification with Europe; the balance of theory and practice in qualifying tests; and the potentially self-defeating effects of introducing too low an initial level of validated qualification.

1992 is a staging post on the route to European economic integration. For Britain, the real issues are not national sovereignty versus supranationalism, but the choice between a liberal, market oriented path to integration and a planned, centralised one. The paper assesses these options as they arise in regulatory policies, in industrial strategy, and in the monetary and fiscal policies facing the Community. It recognises that there are major policy areas where the creation of a central authority is essential but concludes that the market route is often the right—and the only feasible—approach.

This is the third article from members of the CLARE Group to appear in the Review. Future articles will normally appear about twice a year. The Review is pleased to give hospitality to the deliberations of the CLARE Group but is not necessarily in agreement with the views expressed. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, C.H. Feinstein, C.A.E Goodhart, D.A. Hay, J.A. Kay, R.C.O. Matthews, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.F-G. Scott, Z.A. Silberston, J.H.B. Tew, J.S. Vickers, S. Wadhwani.

This paper describes the properties of five major macroeconometric models of the UK economy, through analysis of six standard policy simulations. The simulations are conducted, as far as possible, in a consistent manner across the models. The models were deposited with the ESRC Macroeconomic Modelling in late 1988 and this paper follows comparative analysis of previous model vintages in this Review and in earlier Bureau publications. The paper highlights differences between the models that emerge from the treatment of exchange rates, imports, consumption and price adjustment. Recent changes to the models are shown to have increased simulation differences between them.