This chapter reviews the development of the economy in 1968. It begins with a section devoted to a narrative of economic policy. The concluding paragraphs of the narrative anticipate some of the analysis in the subsequent sections, which are devoted to the behaviour of output and the components of demand, the balance of payments, and employment, unemployment, and productivity.

Output probably continued to rise quite strongly in the fourth quarter of 1968, although in a more restrained manner than in the previous quarter. The rate of rise of industrial production tailed off slightly. Unemployment fell substantially, but movements in this series are not a very good guide to contemporaneous movements in demand and output, appearing as they do to lag quite heavily behind such shifts. (Thus, the quite large reduction in the numbers of wholly unemployed (over 45 thousand, seasonally adjusted) between the third and fourth quarters predominantly reflects the sharp recovery of output in the third quarter, when unemployment rose by 30 thousand.)

The forecast for the rise in total fixed investment between 1968 and 1969 is reduced from the 5.2 per cent figure we gave in November 1968, to 4.4 per cent. Some reduction on the previous forecast is suggested in all the major sectors, but by far the most important change of view is in the outlook for the public sector.

The industrial production forecast presented in February 1968 was based upon an assumption that government policy would secure a rate of overall growth during the year (from the fourth quarter of 1967 to the fourth quarter of 1968) of 4 per cent with a year-on-year rise in gross domestic product of less than 3 per cent. In the event, while the rise in output during the year is estimated to have been just about the 4 per cent assumed, the year-on-year rise was somewhat greater than assumed—about 3½ per cent. Much of the unforeseen buoyancy of output in the earlier part of the year was related to the unexpected consumer boom. This is reflected in the comparison of actual industrial production with the forecast (table 2). The most serious underestimate of growth occurred in industries particularly affected by the consumption boom (textiles, consumer durables, metal goods, leather, pottery, furniture, paper and printing, and ‘other’ manufactures). Overall growth in industrial production, forecast a year ago at 3½ per cent, was about 4½ per cent; the forecast for growth in output of total manufactures, 4 per cent, was exceeded by a slightly larger margin, the actual out-turn being put at some 5½ per cent. The distribution of growth by industrial sector is shown in table 1; this indicates that the growth in output was widely spread, only mining and shipbuilding registering falls.

The year 1968 proved in the end to be a substantially more favourable one for the world economy than had been expected. For industrial production in the OECD countries the rise of about 6 per cent, compared with less than 2 per cent in 1967, was still rather below the average for other recent years. But the growth in their aggregate national output, which had dropped to 3 per cent in 1967, recovered in 1968 to a little more than the previous average of 5 per cent.