| Abstract: | In this Forecast Release we consider the prospects for the economy after the present phase of cyclical recovery. Our central forecast, which we regard as the best medium-term planning assumption, is that the economy slows down to a sustainable growth rate of around 1% per cent. This is in line with the underlying growth of productive capacity but not sufficient to cure unemployment. We recognise that in practice the economy may be pushed away from the underlying growth trajectory by random shocks, and we look at three major risks surrounding the present forecast: a rise in the savings ratio; a slower world recovery; and a cut in investment. We contend that the most serious of these risks is to investment, since the company sector will face a major increase in its tax bill from 1985-6 onwards. A growth recession is thus distinctly possible in 1986, which could, for economic and electoral reasons, be the low point of the present cycle. |
