Front Matter

Front Matter Page

©1996 International Monetary Fund

December 1996

IMF Staff Country Report No. 96/130

United Kingdom—Recent Economic Developments

This report on recent economic developments in the United Kingdom was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with this member country. As such, the views expressed in this document are those of the staff team and do not necessarily reflect the views of the Government of the United Kingdom or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

UNITED KINGDOM

Recent Economic Developments

Prepared by Tim Lane, David Ordoobadi, Manmohan Kumar, Hossein Samiei, and Patrick Vanhoudt

Approved by European I Department

October 7, 1996

Contents

  • Basic Data

  • I. Savings and Investment

    • A. Introduction

    • B. The Facts

    • C. Savings, Investment, and Growth

    • D. Why do Investment and Savings Move Together

    • E. Reasons for Lower Optional Savings and Investment

    • F. Reasons for Below-Optimal Savings Investment

    • G. Conclusions

  • References

  • Charts

  • I.

    • 1. Saving and Investment

    • 2. Components of Saving

    • 3. Gross Fixed Investment

    • 4. Investment

    • 5. Capital Stock Per Worker

    • 6. Saving, Growth and Per Capita Income

    • 7. Real Interest Rates

    • 8. Actual and Prospective Demographics

    • 9. Output/Capital Ratio and Relative Price of Investment Goods

    • 10. Total Investment

    • 11. Financing of Investment

  • II. Potential Growth and the Output Gap

    • A. Introduction

    • B. Approaches to Estimating Potential Output and Output Gap

    • C. Existing Studies and Cross-Country Comparisons

    • D. Empirical Estimates

    • E. Estimates of the Natural Rate of Unemployment

    • F. Determinants of Potential Growth Rate

  • References

  • Text Tables

  • II.

    • 1. Comparison of Potential Growth Rate, Output Gap, and Potential Growth

    • 2. Actual and Potential GDP Growth

    • 3. Output Gaps

    • 4. Contributions to Trend GDP Growth

    • 5. Growth in Labor Productivity

  • Charts

  • II.

    • 1. Actual and Potential Output

    • 2. Estimates of Output Gap

    • 3. Unemployment Rate and Labor Force Participation Rate

  • III. Fiscal Policy and Prospects

    • A. Introduction

    • B. The 1995 Budget and the Outturn for 1995/96

    • C. Staff Medium-Term Projections

    • D. Expenditure Performance and Prospects

    • E. Revenue Shortfalls

    • F. Concluding Remarks

  • Text Tables

  • III.

    • 1. Summary of the 1995 Budge Projections

    • 2. General Government Balance and Debt Ratio

    • 3. 1995 Budget: Main Revenue Measures

    • 4. Central Government Receipts and Expenditure in 1995/96

    • 5. Staff Medium-Term Projections

    • 6. Estimates of Cyclical and Structural PSBR

    • 7. Major Spending Areas

    • 8. Central Government’s Running Costs

    • 9. Tax Revenues

  • Charts

  • III.

    • 1. Actual and Predicted Tax Revenues

  • IV. The Private Finance Initiative Creating Incentives for Efficiency

    • A. Introduction

    • B. Precursors and Analogues

    • C. Past and Prospective PFI Spending

    • D. Structure of PFI Projects

    • E. Allocation of Risk

    • F. Value for Money

    • G. Bidding and Procurement

    • H. Accounting Issues

    • I. Implications for Private Sector Suppliers

    • J. Conclusion

  • References

  • Text Boxes

  • IV.

    • 1 Resource Accounting

  • V. Gilt Market Reforms and Indexed Gilts

    • A. Introduction

    • B. Gilt Market Reforms

  • References

  • Text Boxes

  • V.

    • 1. Optimizing Cost and Risk in a Debt Portfolio

    • 2. Repos

    • 3. Bond Strips

    • 4. Indexed Bonds

  • Charts

  • V.

    • 1. Bond Yields and Inflation Expectations

  • VI. Income Distribution Since the Labor Market Reforms of the 1980s

    • A. Introduction

    • B. Some Facts

    • C. Possible Explanations

    • D. Conclusion

  • References

  • Text Boxes

  • VI.

    • 1. The Gini Coefficient

  • Charts

  • VI.

    • 1. Gini Coefficients for Household Income

    • 2. Ratio of Highest to Lowest Quintile Icomes

    • 3. Income Shares by Decile

    • 4. Changes in Income by Group

    • 5. Income Groups Classified by Family Type

    • 6. Income Groups Classified by Economic Status

    • 7. Household Income by Source

    • 8. Growth in Income and Expenditure

    • 9. Earnings of Top and Bottom Deciles

    • 10. Gini Coefficients and Spending on Labor Market Programs

    • 11. Spending on Labor Market Programs

    • 12. Standardized Unemployment Rates

    • 13. Expenditures on Active and Passive Labor Market Policies

  • Annexes

  • I. Trends in Labor Market Policy

  • References

  • II. Labor Market Policies and Inequality: Is There a Connection?

  • References

  • Annex Tables

  • I.

    • 1. Active vs. Passive Labor Market Polices

    • 2. Employment Service Programs and Pilot Programs

  • II.

    • 1. Description of the Data

    • 2. Regression Results

  • VII. Attracting Foreign Direct Investment

    • A. Inward Investment in the United Kingdom

    • B. Factors Influencing Inward Investment

    • C. Benefits and Prospects

  • References

  • Text Tables

  • VII.

    • 1. Inward Direct Investment in Major European Countries in the US

    • 2. Inward Direct Investment in the United Kingdom

    • 3. United Kingdom Inward Direct Investment by Country

    • 4. United Kingdom Inward Direct Investment by Section

    • 5. Relative Unite Labor Costs

  • Statistical Appendix Tables

  • 1. Real Output and Its Major Components at Constant Factor Cost

  • 2. Labor Market Indicators

  • 3. Selected National Accounts Aggregates at 1990 Market Prices

  • 4. Selected Personal Sector Data

  • 5. Components of Personal Income

  • 6. Selected Financial Statistics-Industrial and Commercial Companies

  • 7. Selected Indicators of Investment Activity

  • 8. Selected Indicators of Wage Developments

  • 9. Selected Indicators of Price Developments

  • 10. Selected Balance of Payments Indicators

  • 11. Merchandise Trade Indicators

  • 12. Exports by Commodity—Volume Indices

  • 13. Direction of Trade

  • 14. Imports of Commodity—Volume Indices

  • 15. Nonfactor Services

  • 16. Capital Account

  • 17. General Government Accounts

  • 18. Central Government Accounts

  • 19. Nominal Exchange Rates

  • 20. Interest Rates

  • 21. Growth Rates of Selected Monetary Aggregates

  • 22. Contributions of Asset Counterparts to Growth in Broad Money Stock

  • 23. Nominal Exchange Rates

  • 24. Interest Rates

  • 25. Growth Rates of Selected Monetary Aggregates

  • 26. Contributions of Asset Counterparts to Growth in Broad Money Stock