^{page 31 note (1)} The December industrial production figure, published after we had done our calculations, suggests that even this is over-optimistic and the official preliminary estimate of output GDP shows a fall of 1/2 per cent. Unemployment also rose (seasonally adjusted) by a further 14,000 in February.

^{page 31 note (2)} National Institute Economic Review no. 66, November 1973, pages 24-33.

^{page 31 note (3)} Several one-day strikes in the docks may also have affected the figures—see Calendar page 49.

^{page 31 note (4)} Prices were already rising before the Arab-Israeli war, though not as spectacularly as they have done since.

^{page 32 note (1)} Full details are given in the Calendar, page 51.

^{page 33 note (1)} See ‘The course of public expenditure to 1977-78’ by T. Ward in ‘Prospects for Economic Management 1973-77’ by the Cambridge Economic Policy Group, Department of Applied Economics, Cambridge.

^{page 33 note (2)} After allowing for ‘multiplier’ and ‘accelerator’ effects.

^{page 34 note (1)} Given that we rule out the possibility of supply and demand being balanced by the classical increase in prices. We do not think that markets for manufactures work in this way to any great extent—certainly not sufficiently to close anything like the whole of the gap, which we estimate would require (if it were all to come on consumer prices) a rise within the period of three-day working of around 20 per cent— followed by a fall when full working is resumed. We think such an outcome most unlikely in the light of historical studies of UK price determination which suggest a major role for costs averaged over some length of time. We have, however, allowed prices to rise in the tables, both as a result of past increases in unit costs and because of the sharp increase which will occur while output is reduced.

^{page 34 note (2)} The preliminary estimate of retail sales in January, which shows a fall of only 2 1/2 per cent compared with December, tends to support our assumption about consumers' inertia. Further evidence will become available shortly in the form of the trade returns which may help confirm (or otherwise) our assumption that the balance of payments will take the brunt of the adjustment. Monthly visible deficits of anywhere between £500 and £700 million in the first quarter would be consistent with our figures. The January visible deficit of £383 million was probably affected by timing differences in the recording of imports and exports. The latter refer, roughly, to half of December and half of January, so the full effects of short-time working on exports will not yet have appeared, especially as one might expect some lag even if the recording were correct. (Note that exports of oil and steel have already been curbed.)

^{page 35 note (1)} We have in fact assumed that this will not happen—it seems to us more likely that both coal and steel would be imported (though neither is available in large quantities on world markets at present, steel might be by April) and residual coal stocks and production re-allocated in order to keep industry going at as high a level as possible.

^{page 37 note (1)} The rationale behind further price rises is the stated intention of some producers to at least maintain oil prices in relation to those of manufacturers—which are, of course, themselves increased by the higher costs of oil both directly and indirectly via further upward pressure on wages in the industrial countries.

^{page 37 note (2)} Not affected by the December budget.

^{page 41 note (1)} It may be objected that we should have let profits take more of the ‘strain’ in the first and second quarters. But if so, then we would probably have to reduce the private investment forecasts still further.

^{page 41 note (2)} i.e. no relative price ‘elasticity’ effect after allowing for changes in demand.

^{page 44 note (1)} Deficit with oil producers.

^{page 45 note (1)} 7 million tons has been given as the ‘danger level’ for power station stocks, below which there is a risk of large scale disruption from unco-ordinated power cuts though, presumably, this figure can be lowered as warmer weather comes in.

^{page 45 note (2)} Assuming an energy/GNP growth ratio of 1, though this is by no means stable from one year to another.

^{page 45 note (3)} CSO, Input-Output Tables for the United Kingdom 1968, Studies in Official Statistics No. 22, HMSO, London, 1973. A summary and some further analysis of the tables is pre sented in M. J. Green and R. T. Baillie, ‘The clarification of economic structure in the United Kingdom in 1968’, Economic Trends, No. 242, December 1973.

^{page 47 note (1)} If sufficient data had been available it would have been preferable to have used commodities rather than industries as the basic unit of production. Since the secondary (non- energy) net output of the combined energy sector is slightly greater than the secondary (energy) net output of all other industries, a slight overstatement of between 1 and 2 per cent of total domestic energy supply is likely.

^{page 47 note (2)} That is, in addition to the usual problems of inter pretation which require that we assume: (a) that all industries exhibit constant returns to scale, (b) that each industry's output is homogeneous in terms of product mix and input requirements, and (c) that the commodity composition of final expenditure components remains unchanged.

^{page 47 note (3)} Between 1968 and 1972 oil-based electricity generation increased by around 200 per cent while the corresponding use of coal declined 13 per cent. Over the same period the share of natural gas in total gas production (on a thermal equivalent basis) increased from less than 2 per cent to nearly 49 per cent, whereas the corresponding share of town gas fell from 56 per cent to 24 per cent. The average delivered price of gas to industrial consumers fell by over 50 per cent between 1968 and 1972, while the corresponding prices of electricity, fuel oil and coal rose by 14, 41 and 56 per cent respectively. See Department of Trade and Industry, United Kingdom Energy Statistics 1973.

^{page 48 note (1)} Judging by table 12 the Chancellor's statement of 17 December that ‘The particular reductions in public expenditure must therefore be directed, not just as elsewhere to cutting the demand for energy in the form of heating of buildings, use of cars and lorries, and so on, but also, and of far greater significance, to cutting the indirect demand for energy’, can be justified for construction programmes and to a limited extent for defence expenditure (which has a high ‘capital’ content of ships, aerospace equipment and road vehicles) but only with qualification for other current expenditure, where indirect purchases exceed direct inputs only for petroleum.

^{page 48 note (2)} Our estimate of the effect on the CPI assumes tha intermediate buyers, who, even excluding the fuel oil com ponent, absorb over half of the net yield of hydrocarbon-oil duty, pass the duty on fully to final buyers. If some of the increase was absorbed by profits, the increase in the CPI would be reduced.