^{note (1) in page 4} The procedures described by Mrs M. Gregory in her article ‘The CBI “Industrial trends survey” as a measure of current manufacturing output’ (National Institute Economic Review no. 52, May 1970) were applied to the CBI findings as a check on the level of output expected to be recorded in this quarter.

^{note (1) in page 6} It is largely because of the erratic fall in investment spending in the first quarter of this year, that the predicted year-on-year growth rate is not much under 3 per cent for 1971 on 1970, compared with only 1/2 per cent for 1970 on 1969.

^{note (2) in page 6} Although the latest three months' average of net new export orders (June-August) is well up on the previous three months' figures, the latest figures are always of doubtful reliability; the firmer data for the March-May period give an average just below the average level for 1969.

^{note (1) in page 7} We formed this view essentially by inspecting the behaviour of price relationships of the kind elaborated in the May 1970 issue of this Review. In August we overestimated the rise in consumer prices despite having underestimated the rate of wage inflation. (See National Institute Economic Review no. 52, May 1970, pages 17-18.) Our impressions of business opinion support the view we are now taking that a substantial further rise in prices to absorb past increases in costs is to be expected.

^{note (1) in page 8} There is evidence from retailing establishments, extensively reported in the Financial Times, which suggests that at any rate in October sales of consumer goods, especially certain categories of durables, were well up. But the evidence is patchy; the problems of allowing for price rises, seasonal influences and possible bias in the representative nature of store reports received make interpretation difficult.

^{note (1) in page 9} It is not as high as the second quarter increase, but that occurred in the context of a (probably) faster rate of rise in real income and expansion of borrowing.

^{note (2) in page 9} In the absence of usable technical relationships we conducted an investigation into the pattern of settlements and claims. Taking only known settlements already arrived at for the future, and existing claims, we derived a prediction for average earnings. This gave a much greater falling-away in the rate of wage inflation than that put forward in the text. But the results of this kind of procedure are certainly biased downwards; the settlements already known for the future, for example, were arrived at in less inflationary conditions, and future claims coming due for settlement are also likely to be higher than those already lodged. So the path chosen, though hewn to fit the ‘wage round’ hypothesis, is a good deal higher than would be given by the kind of procedure outlined.

^{note (3) in page 9} But it is important to note that in the forecast given here the adjustment of prices to past wage rises gradually over hauls the declining trend of average earnings increases. Thus real income advance is consequently pictured as slowing down, tending towards zero. That this occurs could well be argued to provide support for an ‘acceleration’ view of average earnings increases.

^{note (4) in page 9} These include not only a genuine increase in pay but also a change of system whereby forces' pay has been increased to cover the full cost of lodgings, which are now being charged (and paid) for.

^{note (5) in page 9} The figures of the ‘credit’ effect shown in table 3 are a weighted sum of increases in bank advances classified to ‘other personal’ and increases in hire purchase debt out standing. A weight of 0.8 is used, broadly reflecting the weighting obtained when these debt figures are employed in consumption relationships, after allowing for their rather imprecise coverage.

^{note (1) in page 10} It may be worth repeating our view that variations in the rate of rise of wages and earnings over the long haul do not make a very significant difference to the rate of rise of consumers' expenditure in volume terms. Within short time periods, because of the adjustment lag involved, larger induced variations can occur. The fundamental reasons for this lie in the link between wages and prices and in the high level of rates of taxation. See National Institute Economic Review no. 51, February 1970, pages 26-27 and no. 52, May 1970, pages 17-18.

^{note (2) in page 10} The figures shown for imports of goods and services in table 1 are smoothed to allow for the effects of the dock strike; that is, they represent our estimate of the ‘underlying’ position.

^{note (3) in page 10} This compares with pre-devaluation relationships in which the growth of imports appears about one/two times as high as output growth (over the period 1959-66, for example).

^{note (1) in page 11} The improvement in the terms of trade between 1970 and 1971 is worth—in ex post arithmetical terms—an improve ment of some £150 million in the balance of trade.

^{note (2) in page 11} These figures, like those given in table 4, take no account of any speculative swings associated with the ending of the import deposit scheme in the last quarter of this year. Table 4 figures for the third and fourth quarters of 1970 have not been adjusted for the effect of the dock strike, unlike those given in table 1, which were smoothed.

^{note (1) in page 12} Strictly speaking, this applies mainly to our forecast for average, rather than unit, values. The relationship between the two has not been in line.

^{note (2) in page 12} The scheduled importation of further ‘Jumbo’ aircraft is a special influence in raising import levels in 1971. The effects of this have been smoothed over the four quarters of the year.

^{note (3) in page 12} We discussed the issues raised by the earlier (1969) discovery of export under-recording in some detail in the issue of this Review for August 1969, pages 14-15. Similar comments apply in the present instance, although of course the new revelations do not apply over a long past period but only to the period since the beginning of the year. The fact that the positive ‘balancing item’ for the first two quarters will be reduced to the extent that the estimates of exports are raised implies that the inflow of short-term capital in the first half of the year was not so big as the previous figures suggested. But this is not a reason for taking a more pessi mistic view about short-term capital movements in the future, whereas expectations about future exports must clearly be revised upwards.

^{note (4) in page 12} House of Commons Debates, 4 November 1970, col. 1089.

^{note (1) in page 13} ‘Public expenditure 1968-9 to 1973-4’, Cmnd 4234.

^{note (1) in page 15} An account of experience with the Survey appears in ‘The investment intentions inquiry in manufacturing industry’, Economic Trends, September 1970, pages lvi-lxiii.

^{note (2) in page 15} ‘New policies for public spending’, Cmnd 4515.

^{note (3) in page 15} ‘Public expenditure 1968-9 to 1973-4’, Cmnd 4234.

^{note (4) in page 15} We have little to say about the effects of this change, except to observe that the arguments adduced for it in the relevant White Paper are incomplete and almost wholly lacking in supporting evidence; on the main point, which is the linking of investment subsidies to current company profitability, the justification offered is no more than a counter- assertion to the arguments used in the 1966 White Paper (‘Investment incentives’, Cmnd 2874) which introduced the grants system and where, by contrast, at least some sup porting evidence was deployed.

^{note (5) in page 15} House of Commons Debates, 27 October 1970, col. 51.

^{note (6) in page 15} House of Commons Debates, 4 November 1970, col. 1094.

^{note (1) in page 16} This is an underestimate to the extent that the actual total of upward revisions in the itemised estimates exceeds the figures of ‘main changes' given in the White Paper text which, as stated, amount to £75 million. The Chancellor has subsequently quoted a figure of £88 million as apparently representing the total of upward revisions; this suggests that the cuts due to new policies amount to £279 million, provided that the change in Long-term Defence Costings and price adjustments are excluded from that category, as they are here, although not, it would seem, by the Chancellor. (See House of Commons Debates, 4 November 1970, col. 1090.)

^{note (2) in page 16} It also fails to provide a price linkage with earlier White Papers. As a result the underlying rate of increase in public spending in national accounts terms cannot be re-assessed in the light of the White Paper figures. As explained above (pages 6 and 15), the guidelines derived from earlier state ments have had to be discarded; fresh information would have been very welcome. In all these respects the recent White Paper represents a substantial step backward after the progress and improvement achieved in recent years.

^{note (3) in page 16} This coefficient reflects a combination of an assumed marginal dividend payout ratio and savings effect.

^{note (1) in page 17} Apart from the changes in social security provisions this arises because the main savings are achieved through raising charges or withdrawing subsidies. About £150 million of the cuts are of this type.

^{note (2) in page 17} Some examples of the different ways in which the cuts will be reflected in consumers' expenditure are as follows: the treatment of government subsidies to food and milk involves imputing to the personal sector both the full cost of the consumption as expenditure and a balancing amount of current grants ‘in kind’, so the cuts here will be reflected in current grants; the prescription and other National Health Service charges are treated directly as an item of consumers' expenditure, an increase in the charges apparently involving a rise in the consumer price index; most of the other sub sidies being cut (those on housing, agriculture and railways) are treated wholly or partly as negative indirect taxes so that here the cuts represent increased net indirect taxation.