A personal prediction for the U.K. economy

Article Abstract:

Britain is a small, open economy, and much of its economic forecast is tied to global economic events. The expected global economic improvement for 1987 means that the British economy can expect increased consumer demand, improved worker productivity, higher capital expenditure levels, continuing but slower inflation, and a slight reduction in unemployment levels for the coming year. Although the falling oil prices meant initial deeper recession, the lower prices will mean lower commodity prices over the long term. The expected growth in demand and inflation could, however, result in rapid price increases throughout 1987, which would deter economic recovery.

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Interest rates set to fall further

Article Abstract:

Interest rates offered by British banks have fallen from 12.5 percent in March 1986 to 10 percent in July 1986, and are predicted to drop further (to 8 percent by December 1986). These interest rate drops are attributable to the dramatic decline in inflation in Great Britain and the reduced interest rates available in foreign countries. Recently, the Chancellor of the Exchequer predicted a 3.5 percent rate of inflation for Britain in 1986. Despite this optimistic outlook, some financial experts say the interest rate cannot be reduced further, since such reductions would inflate wages and have an adverse effect on Britain's money supply.

DEPOSITORY INSTITUTIONS, Banking industry, Interest rates, Bank loans

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When forecasting is unusually hazardous

Article Abstract:

The outlook for the UK economy is mixed. Domestically, the economy should do fairly well, despite the Oct 1987 stock market crash, because of continued strong consumer spending. International developments could foreseeably hurt UK economic growth, if US fiscal policy is altered in a way that would no longer support world economic growth and UK export markets. As it is, UK economic growth is expected to drop from 1987's 4% rate to 2.5%. Inflation during the early part of 1988 should be less than 3.5%. Real personal income should increase by 5%.

Stock Market Crash, 1987

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