OECD Economic Surveys: United Kingdom

Every 18 months
1999-0502 (online)
1995-3445 (print)
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OECD’s periodic surveys of the British economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

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OECD Economic Surveys: United Kingdom 2002

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23 Nov 2001
9789264193963 (PDF) ;9789264191433(print)

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This 2002 edition of OECD's periodic review of the UK economy examines recent economic developments, policies and prospects and includes special features on raising productivity and managing public expenditure.

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  • Assessment and Recommendations

    Growth has slowed since the summer of 2000, falling from significantly above to just below potential, but held up better than in the other major OECD economies. A series of domestic shocks, including the most severe foot-and-mouth disease crisis ever to hit the country, bad weather conditions and rail disruptions, do not appear to have had much adverse effect on overall economic activity, and the slowdown has mostly stemmed from global factors, notably the unwinding high-tech bubble and faltering overseas demand. This has been reflected in a decline in total fixed capital formation in the first half of 2001, notwithstanding a pick-up in government investment and resilient residential investment. The weakening of activity since late 2000 will be reinforced by the economic consequences of the 11 September terrorist attacks in the United States...

  • Macroeconomic Performance and Prospects

    Prior to the terrorist attacks of 11 September 2001, activity in the United Kingdom had already slowed since mid-2000, reflecting soft external demand and a drop in business investment. However, the deceleration was less steep than in the United States and in the euro area. Put in a broader historical perspective, a striking feature of the ongoing cycle is its limited amplitude, notwithstanding a series of shocks including surging oil prices, weakening overseas demand and, domestically, wet weather, rail disruptions and a severe foot-and-mouth disease. Another prominent feature, not unlike in the United States, is the contrast between the momentum of consumption and the external drag, reflecting at least partly a strong exchange rate. This pattern is the mirror image of the one witnessed in the mid-1990s. Also very different from that period are the low level of unemployment and the degree of entrenchment of low inflation. Looking ahead, uncertainties have risen sharply following the terrorist attack in the United States and activity is likely to weaken further in the near term. However, as long as the present uncertainties dissipate, and helped by the monetary and fiscal stimulus currently underway, growth should recover by the middle of next year, unless the imbalances in the economy unwind abruptly.

  • Macroeconomic Policy

    Against the background of a small positive output gap and buoyant aggregate demand, the macroeconomic policy stance was fairly tight in 2000, but it has eased since. Short-term interest rates were raised early in 2000 and then remained unchanged, while fiscal consolidation continued, with the cyclicallyadjusted primary surplus rising by another 0.3 per cent of GDP on a year-average basis. In the context of a significant drop-off in external demand, however, interest rates were brought down starting in early 2001, and concerns over the economic consequences of the terrorist attacks in the United States prompted further cuts. Stepped-up public spending combined with a small projected decline in the revenue ratio should amount to a significant easing in the fiscal stance in 2001 and beyond. Viewed in this light, monetary and fiscal policies have both turned from restrictive to supportive in 2001. However, since this shift in stance will take some time to work its way through the economy, its impact will mostly be felt in 2002.

  • Raising Productivity to Enhance Potential Growth

    Following the June 2001 general elections, the Government stressed that it would step up its efforts to raise productivity by pursuing policies intended to boost physical and human capital and to enhance the capacity to innovate. Despite progress in recent years, the United Kingdom continues to trail behind many other countries in terms of investment per worker and education spending per student (Figure 14), while productivity performance has remained disappointing.

  • Managing Public Expenditure

    Currently, the UK’s fiscal situation and outlook is better than for many years, with expenditure now financed without heavy recourse to borrowing. This has been the combined result of sustained fiscal rigour during much of the 1990s and a firm recovery from the recession that hit the economy at the beginning of the decade. The attention has now turned to consolidating this achievement while tackling with priority the sorely needed improvement in the quality of several key public services, such as education, health care and public transport. Traditionally, budget managers at all levels of the administration have had to grapple with strict top-down allocation of funding across spending departments, programmes and – importantly – public enterprises on an annual basis. This feature and decisions to consolidate the budget without raising taxes has led to a squeeze of discretionary investment spending over time and a deterioration of public service provision. The need to address these deficiencies motivated the present government, after it took office in 1997, to develop a new framework for fiscal management and to continue the emphasis on mobilising the private sector where this is expected to yield gains in operational efficiency.

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