In the last few months of 1993 the economic recovery in the UK continued to gather strength and become more broadly based. Signs of some improvement in demand are now apparent in virtually all sectors of the economy and capacity utilisation has begun to rise. Inflationary pressures have however remained modest and the outlook for 1994 is for a further year of steady, if unspectacular, growth with moderate inflation.

Output growth in the OECD as a whole is likely to be around 2 per cent in 1994, the fourth year in succession when it has been below estimates of potential growth. A number of economies were growing very rapidly in 1990 and 1991, and capacity was stretched in both Germany and Japan. However, subsequent recession has taken these economies to levels of capacity utilisation and unemployment that have resulted in downward pressure being put on wage and price inflation. Inflation generally falls in recessions, and the fall from an OECD average inflation rate of 4.5 per cent in 1990 to around the 2.5 per cent projected for 1994 is not without precedent. However, the prospects for inflation over the next few years look a little better than one might expect in an upturn, and we are forecasting that OECD consumer price inflation will stay around 3 per cent for the next few years.

The UK National Debt measured as a fraction of GDP has declined sharply since the war. However the large budget deficit and adverse demographic trends mean that the budgetary position is likely to remain of concern. High budget deficits lead to a debt which cannot be serviced and fear of this may lead to higher interest rates. Even when the national debt is kept under control it crowds out domestic and foreign assets and the taxes needed to service it may distort the economy. A policy of holding tax rates virtually constant reduces distortions to the intertemporal pattern o f consumption, but means that government loses control of the path on which the national debt is stabilised. Estimates are provided of the burden imposed through crowding out, and the interaction of monetary and fiscal policy is discussed.

This article reports on a detailed comparison of productivity, machinery and skills in matched samples of food manufacturing (biscuit) plants in Britain, Germany, the Netherlands and France. In comparing labour productivity levels, explicit account was taken of inter-country differences in the mix of product-qualities as well as differences in physical quantities produced per person-hour. Real (‘quality-adjusted’) productivity levels were highest in the German sample, an estimated 15 per cent on average above those in the Netherlands and France and about 40 per cent higher than in Britain. International differences in quality—as measured by value added per ton—were found to be at least as important as differences in crude tonnage produced per person-hour. The pattern of productivity advantage could not be attributed to inter-country variation in the age and sophistication of capital equipment. However, there were important differences in workforce skill levels which could be linked to both relative productivity performance and the predominant choice of product strategy in each country. For example, in the German industry the mix of initial and continuing training received by employees supports a successful strategy of rapid growth in small- and medium-batch production of elaborate, high value added biscuits which would be hard for the other three countries' industries—and particularly Britain—to emulate. In Britain the greatest success is achieved by large highly-automated plants engaged in the bulk production of relatively uncomplicated varieties of biscuit. Given the present structure of workforce skills in Britain, it is understandable that—as in many other branches of manufacturing—British biscuit producers tend to specialise in relatively low value added goods. However, the study suggests that some of the potential economies of large-scale production are lost due to excessive rates of emergency downtime and the limitations of narrowly-trained employees.

There is a widespread view that official estimates of the capital stock in the UK may be subject to substantial error. However, until recently making any major improvement would have incurred costs beyond any reasonable budget, so the Central Statistical Office has only been able to make relatively marginal changes despite its continuing concern about the problem. Now, as the result of the computerisation of asset records and modern accounting requirements, a radical change from existing indirect estimates towards direct estimation is possible. This note, drawn from the results of a recent research project, appraises the problem, suggests how the estimates of the capital stock in the UK might be improved using existing methods and then shows how direct estimation could be used to derive improved current and retrospective estimates.