^{(note 1 in page 6)} That is, according to the output measure, which is usually considered to be the most reliable indicator of quarterly movements. The other two measures have different quarterly paths. The expenditure estimate indicates that output was still falling in the third quarter of last year, but rose quite sharply in the fourth quarter and in the first quarter of 1982. According to the income estimate, output rose in the fourth quarter of 1981, but was unchanged in the first quarter of 1982. All three estimates agree that GDP was little changed between the first and second quarters of this year.

^{(note 1 in page 7)} For example, through effects on companies' cash flow and on the availability of credit in ‘non-clearing’ markets, such as those for housing finance. It is also possible that some firms use methods of investment appraisal that do not allow properly for inflation.

^{(note 1 in page 8)} This does not, of course, necessarily imply that the Bank of England has successfully followed policies designed to stabilise the domestic economy; interest rates tend to convey a misleadingly favourable impression of the counter-cyclical impact of monetary policy since changes in interest rates are a consequence as well as a possible independent source of changes in economic activity. The counter-cyclical behaviour of interest rates may also to some extent reflect the influence of ‘exogenous’ events (e.g. a loss of foreign demand for British products) which contribute simultaneously to a business contraction and to a monetary contraction, or the pursuit by the authorities of other objectives (e.g. the stability of sterling) which are not independent of the domestic econ omic cycle.

^{(note 1 in page 10)} We have assumed that ‘earnings drift’ in manufacturing will be lower than in the last wage round, when it was un usually high. The Department of Employment estimates that the ‘underlying’ increase in manufacturing earnings, August 1981-August 1982, was 10 per cent; with wage settle ments of 6 3/4 per cent, this implies a drift of over 3 per cent. About 1 1/4 per cent of this can be explained by increased overtime. The remainder is probably due largely to extra ‘payments by results’ with productivity rising, and changes in the composition of the labour force, although one cannot rule out the possibility that our information on settlements is not fully representative of the sector.

^{(note 1 in page 13)} The research on which this equation is based is described in K. Cuthbertson, ‘The determination of expenditure on consumer durables’, National Institure Economic Review, no. 94, November 1980.

^{(note 2 in page 13)} It is possible that some hire-purchase companies might abolish the minimum deposit requirement entirely, but for prudential reasons most are likely to continue to require significant down-payments on loans.

^{(note 1 in page 13)} See G. C. Wenban Smith, ‘Factors influencing recent productivity growth-report on a survey of companies’, National Institute Economic Review, no. 101, August 1982, pp. 60-62.

^{(note 2 in page 14)} Even when short-term and long-term rates were at their peak in October of last year, only 12 per cent of respondents to the CBI Industrial Trends Survey cited ‘cost of finance’ as a factor ‘likely to limit capital expenditure authorisations over the next twelve months’; 52 per cent cited ‘uncertainty about demand’ and 35 per cent an ‘inadequate net return’.

^{(note 1 in page 18)} Department of Employment Gazette, April 1978.

^{(note 1 in page 19)} Department of Employment Gazette, April 1981; see also p. 46 of this Review.

^{(note 2 in page 19)} The forecast of unemployment does not take into account the change in the method of collecting the data which was introduced in November. The old method was based on the number of unemployed who register for work at job centres or careers offices. From November, the ‘count’ includes only those who claim benefit or who make regular declarations of their unemployment at Benefit Offices for the purpose of receiving national insurance credits. The unemployed who do not fall into this category but who register for work will not be included. An additional change is the inclusion of the severely disabled.

The Department of Employment estimates that the exclusion of non-claimants (excluding school leavers) will reduce the count by about 5 per cent of the total; the inclusion of the severely disabled will increase it by about 20,000; and the change in the source and method of compilation will reduce it ‘somewhat’.

^{(note 1 in page 21)} This note was prepared by Simon Wren-Lewis.

^{(note 2 in page 21)} Figures for the productivity of the ICC sector are not available, and so a weighted average of various industry groups was used.

^{(note 3 in page 21)} The series may therefore more accurately reflect firms' behaviour, although admittedly the actual lags used are fairly arbitary. They are designed so that a permanent rise in inflation has no long-term effect on profitability. Alternatively price setting may be based on expected, rather than lagged, costs.

^{(note 1 in page 23)} For a model of capital issues based on a similar approach, see A.D. Bain, ‘A model of UK company financial behaviour’; The Manchester School, 1978.

^{(note 2 in page 23)} See for example A. D. Bain, ‘Structural imbalance in the UK financial markets’, Bank of England Panel Paper No. 29.

^{(note 1 in page 24)} For example an equation based on Keith Cuthbertson's work on bank lending containing the borrowing requirement as one of its determinants (see pp. 63-77 of this Review) fails to pick up the full extent of the rise in 1981 (IV) and 1982 (I)

^{(note 2 in page 24)} See the Autumn/Winter 1981 issues of the Midland Bank Review for example.

^{(note 3 in page 24)} This note was prepared by Chris Trinder.

^{(note 1 in page 25)} National Income and Expenditure, 1982 edition.