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Published online by Cambridge University Press: 26 March 2020
If 1975 is remembered as the year when inflation dominated all other issues, 1976 cannot be so simply characterised. It was the year of sterling crises, of worsening unemployment, of public expenditure cuts, of trading wage restraint for income tax relief, and of the IMF visit. The major events are listed in Table 1.
(1) This discussion is based on the estimates of fixed invest ment shown in table 4, p. 30.
(1) For several years after sterling floated, markets were very thin and sterling was generally treated as falling under the sphere of influence of either the ‘snake’ group of currencies (for example, when all rose against the dollar in 1974 after IET was abolished) or of the dollar area (during the oil crisis); and after the collapse of the Herstatt Bank and other misadventures in the foreign exchanges in 1973, the international banking system had been cautious about holding very open positions.
(1) These calculations take no account of the repayment of income tax to those who become unemployed, though such repayments will of course affect the actual incomes of the unemployed.
(2) One of these affected the depreciation deduction-previously estimated at historical cost and now written up by 40 per cent to take some account of the increase in the cost of replacement. The other change was the introduction of an allowance for the rising value of the stocks required-30 per cent of an increase in this can now be deducted from gross profits for Price Code purposes.
(1) A. J. H. Dean, ‘Unemployment among school leavers: an analysis of the problem’, National Institute Economic Review, No. 78, November 1976.
(2) Hansard, 15 December 1976, col. 1526.
(3) On the unforeseen element in this public sector expansion see National Institute Economic Review no. 75, February 1976, pp. 87-9.
(1) This scheme requires all banks and deposit-taking finance houses to place on non-interest-bearing deposit at the Bank a proportion of the growth (above a certain level) of interest-bearing resources. The effect is to discourage the banks from accepting deposits and thus to restrain the growth in bank lending. For details of the scheme, see Bank of England Quarterly Bulletin, December 1976, p. 434.
(1) For a brief discussion of the recent reintroduction of Domestic Credit Expansion (DCE) as a monetary target, see Chapter III, pp. 40-43 below.
(1) The Treasury and London Business School forecasts were prepared before agreement was reached with the trade unions on a pay norm, but both forecasts correctly assumed that the conditional tax cuts would be fully implemented.
(2) See note (b) to table 9.
(3) We were still under-predicting the size of the fall in private investment.