This paper uses Growth Accounting and Production Function Analysis to decompose the factors behind differences in growth between the UK, France and Germany between 1992 and 2005. Most of the growth differential between the United Kingdom, Germany and France since 1993 can be explained by structural factors. The United Kingdom's higher growth has originated essentially in the finance and business sector, which is ICT-intensive. Germany's weak growth reflects in large part the aftermath of the unification shock and a continued fall in the labour input. At the same time there has been a sharp slowdown in knowledge accumulation, which seems to have restrained labour productivity growth. After EMU, the performance of German manufacturing improved relative to both France and the United Kingdom, while capital deepening became less supportive to growth because of lower investment in infrastructures and dwellings. France's higher growth relative to Germany since 1999 comes essentially from the non-tradable sectors and from a higher labour input. This may be partly related to a more significant decline in the volatility of real interest rates.

• The UK economy is expected to grow by 2.0 per cent in 2016, down from the 2.3 per cent predicted in the February Review. Growth will pick up to 2.7 per cent in 2017.

• We expect the Bank of England to start raising interest rates in November. Rates will then continue rising throughout 2017, ending the year at 1.5 per cent.

• Although broadly unaffected in 2016, GDP is projected to be 1 per cent lower than our baseline forecast in 2017 if the UK votes to leave the European Union in next month's referendum. In the longer run, GDP is expected to be between 1.5 and 3.7 per cent lower than our baseline forecast.

A key insight from Adam Smith is that economists should base their conclusions about a monetary institution or policy on a careful study of the history of that institution or policy, a study that includes the experiences of other countries. To illustrate Smith’s reliance on financial history we cover five current monetary problems that have close analogies with problems that Smith discussed: (1) inflation, (2) banking panics, (3) public debt, (4) usury laws, (5) central bank digital currencies.

For path-breaking insights on how prices can guide the efficient allocation of resources and how innovation and investment can spur economic growth, Adam Smith is justly renowned. He was, however, well aware of problems posed by market dominance—specifically in banking and, more generally, wherever getting to the scale that delivers increasing returns leads to monopolistic behaviour. For the historical record, we draw on the recent wide-ranging survey by Acemoglu and Johnson on how the benefits of innovation have been spread across society since the Industrial Revolution. We also consider these issues in the context of geo-political competition.

I discuss six tools available to monetary policy makers. Three of these have been used since the inception of central banking. Three are new and were introduced in the aftermath of the 2008 financial crisis. I argue that, when the UK Monetary Policy Committee raises the interest rate, it should maintain a large balance sheet that consists of both risky and safe assets. Further, the Bank should trade the risk composition of its balance sheet to promote the stability of asset prices.

This paper charts the evolution of mainly empirical research at the NIESR over the 1970s and 80s. As was all too evident there were very large discrete technical improvements in data handling and manipulation over this period. Less well appreciated were the effects on the economy of major supply-side shocks coming from the World economy leading to ‘Stagflation’ and, interconnected but somewhat later, in the UK, marked changes in macro policy regime. This latter was strongly influenced by the seminal papers of Lucas (1976) and Sims (1980); both highly critical of the then current practices in macroeconomics, though each having very different intellectual stances. The response in the NIESR was to engage at an early stage in these innovations; applying the mantra that an informed criticism was more efficient than an uninformed one. During this period it became a leader in the econometrics of applied macro modelling under different expectations assumptions, including the rational expectations hypothesis (REH). Throughout, it remained critical of the anti-empirical drift encouraged in the Lucas Critique, criticism borne out more recently by the financial instability of the 1990s and the crisis that followed.

One method of short-term economic forecasting is the use of indicators which normally change direction in advance of business activity as a whole. This method has been extensively developed over many years, with some success, by the National Bureau of Economic Research in the United States. In the present article we have explored the possibility of finding such a set of leading indicators for the British economy, with special reference to post-war movements.

The growth of output in OECD member countries has been abruptly checked. Helped perhaps by relatively favourable weather, industrial production appears to have increased by 1-1½ per cent in the first quarter. In the second, however, there seems to have been quite a significant fall in Western Europe as well as in the United States, and a marked slowing down of growth in Japan (table 1). We no longer expect the aggregate rise for the year in member countries to be any more than ½ per cent (implying a drop of similar magnitude from the first quarter's rate), and the OECD secretariat has been forecasting a marginal fall. In terms of GDP the change of trend has been less pronounced but may well have been equally general. Though both we and OECD are expecting a rise of a little more than 1 per cent for the whole of 1980, some fall seems likely in the second half of the year.

In this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.

Problems arising in the US economy and financial system are frequently of global significance, and the inauguration of a new President provides a convenient occasion for taking stock of the US economy's recent performance and prospects. In this article we include some tonger-term background as well as an assessment of the current situation. The article is a sequel to one which we wrote nearly four years ago and which focused mainly on the remarkable recovery from recession achieved by the US economy in the period 1982-4.

This analysis and forecast for the economy is mainly concerned with the effects of devaluation and the associated measures taken. It begins, therefore, with a separate analysis of these effects. These are then superimposed on the pre-devaluation forecast for 1968. Briefly, this pre-devaluation forecast showed a rise in real gross national product of 3½ per cent between the years 1967 and 1968, and a rather higher rise than this—of nearly 4 per cent—between the fourth quarters of 1967 and 1968. It also showed a ‘basic’ deficit, on current and long-term capital account (including a ‘normal’ balancing item) of £275 million in 1967 and £250 million in 1968.

The pattern of real exchange rates has changed significantly since February. Our currency forecasts at that time were in line with the implied forward rates in financial markets, with the yen projected to appreciate slowly against the dollar, rising from 100 to the dollar in the first quarter of 1995 to around 90 to the dollar in 1997. Within Europe, we projected a further small appreciation of the D-mark and a continuing depreciation of the lira and the peseta. Overall, we expected ‘real exchange rates to stay approximately stable’. In the event, the yen rose strongly in March and April to around 80 to the dollar, while the D-mark rose from around 1.50 to 1.38 to the dollar. At the same time, the lira/D-mark exchange rate fell by over 10 per cent and the Exchange Rate Mechanism was placed under renewed strain, with both the peseta and the escudo being devalued. As a result, the Japanese and US real effective exchange rates are respectively 15 per cent higher and 7 per cent lower than we had previously expected. These developments also had a wider impact on financial markets. The discount rate was cut in Japan and Germany and long-term rates rose in Italy and Spain. Equity prices fell sharply in those countries with appreciating currencies and jumped up in most of the countries whose exchange rate has depreciated.

Three new commodity price indices have been compiled by the National Institute and appear in table 20 of the Statistical Appendix (page 50). Their purpose is to give an early (but necessarily rough) indication of current price movements in three trade flows:

1. (a) in United Kingdom imports, with sub-indices for food and tobacco, industrial materials and fuel,

2. (b) in the exports of the overseas sterling area,

3. (c) in the exports of primary producing countries in total.