The phase of relatively slow growth, that started early in 1985, continued at least up to the second quarter of this year—the last quarter for which there are full national accounts. GDP was probably then some 1½ or 2 per cent higher than a year before; the slightly higher figure is suggested by the output estimate, the lower one by the average estimate. This increase depended almost wholly on a rise of 5 per cent in consumers' expenditure, whose real incomes rose rapidly as price inflation slowed down and wage inflation did not. Exports barely changed. So did public consumption. Fixed investment increased between the second quarters of 1985 and 1986, but not between the first halves of the two years—a comparison less affected by fluctuations in leasing expenditure in anticipation of changes in capital allowances. Investment in stocks was also constant, comparing half years.

After a disappointing first quarter in which, in broad terms, the small growth in output in the OECD area could be attributed wholly to stock movements in the US, the second quarter brought a considerable improvement. Though US stockbuilding was much smaller, OECD countries' total GDP appears to have risen by about 1 per cent, with notably rapid growth in major countries where output had fallen in the first quarter (Germany especially, Japan, France and, on some estimates, Italy). This acceleration, based largely on consumers' expenditure, was moreover achieved in the face of adverse developments in the foreign trade sector, with many non-OECD countries, the oil producers in particular, reducing the volume of their imports to compensate in part for a worsening in their terms of trade.

Given assumptions about developments in the rest of the world, the NIESR model is used to explore how the British economy might develop over the medium term under alternative economic policies. In the first part of the note it is assumed that policies are broadly unchanged. In the second part it is assumed that new policies are introduced along the lines of the programme of economic expansion advocated by the Labour Party.

This is the third and last in a series of articles comparing macroeconomic policy in this country and in our largest European neighbours. A comparison with France was published in the Review in November 1984 and with Germany in November last year. The Italian economy is less well known in this country than that of either France or Germany. As a result its achievements may not be so widely appreciated. There have been no doubt, and remain, serious economic problems in Italy, but on balance it is the continued vitality of that country that needs to be better understood. In particular we are bound to ask how economic policy has contributed to economic development in Italy given the very difficult political environment in which it has had to operate for much of the past decade.

Energy is a world issue and since future developments, particulary of oil, are of paramount importance to the UK economy, we have to take a world view. We start by discussing the prospects of the supply and price of oil; the outlook for other types of primary energy as well will be considered briefly.

Even with the contribution from North Sea oil, the British economy has on average since 1973 grown very slowly—barely half as fast as it did during the earlier post-war period. However the period since 1973 cannot be regarded in any sense as normal; for it incorporates two major recessions, and the recovery from these has clearly not been complete.

The last article considered the potential growth of national resources. This article considers the various demands on these resources-reviewing in turn the claims of investment and public expenditure, the resource implications of the need to maintain a satisfactory balance of payments, and finally, as the residual between the sum of these demands and available supply, the implied growth in private consumption.

The structural pattern of the economy is changing all the time. It has changed considerably in the past ten years (table 1), partly because of the emergence of oil production, but partly also because industries that previously constituted the mainstay of the UK economy—like steel, coal, textiles and mechanical engineering—have declined in importance whilst others, for example electronics and chemicals, have become the driving force of industry and certain types of services have grown out of all proportion to the national economy as a whole. This point can be illustrated by the fact that in the ten years to 1983 manufacturing output fell by 15 per cent, while at the same time the output of all services increased quite markedly and one section, banking, financial, business and professional services, insurance and leasing, grew by some 70 per cent.