^{note 1 in page 5} The income estimate was 2¾ per cent higher and the expenditure estimate was almost unchanged.

^{note 1 in page 6} The unreliability of the data for 1929-34 should be borne in mind. Moreover, comparisions of inter-war and post-war data on unemployment suffer from differences in definition.

^{note 1 in page 7} Excluding the effects of indexing income tax, capital gains tax and capital transfer tax in accordance with statutory provisions, but not the effect of indexing excise duties.

^{note 2 in page 7} The contingency reserve is unlikely, in fact, to be over subscribed, but the estimate of shortfall was probably mistaken.

^{note 3 in page 7} Capital spending on housing, which had been the object of a series of measures over the previous year designed to reduce persistent underspending, was specifically exempted from the July cuts. However, on 19 October a cut of £200 million to level of spending planned for 1984/5 was announced. The rate of home improvement grants, which had been raised only the year before, was reduced from 90 to 75 per cent.

^{note 4 in page 7} Issue no. 99, February 1982, pp.85-95.

^{note 5 in page 7} Adjustments have not been made for the effect of variations in inflation on the real value of public sector debt. With inflation declining, the ‘real’ budget deficit would tend to show a more marked easing in stance over the past two years.

^{note 1 in page 8} Like the budget balance per se, these indicators will tend to reflect movements in economic activity as well as discretionary policy changes. Thus, an increase in economic activity would be expected to increase the demand for money and credit, which of itself would be expected to induce a faster rate of increase in the monetary aggregates and a rise in interest rates. At face value, money indicates an easing in policy and interest rates a tightening. Yet no change in policy has in fact been made.

^{note 1 in page 9} See Bank of England Quarterly Bulletin, December 1983, pp. 471-6.

^{note 2 in page 9} Real rates on personal bank loans, for example, are positive, but fell slightly in 1983 as the banks cut their base rates by more than the fall in consumer price inflation.

^{note 3 in page 9} A large rise in lending ostensibly for house purchase may also have contributed to the financing of consumer spending. This is argued in the Bank of England Quarterly Bulletin, September 1983, pp. 332-4.

^{note 4 in page 9} ‘Selected liquid assets’, as defined in table 9.4 of Financial Statistics, multiplied by the 12-month rate of change in the con sumer price index.

^{note 5 in page 9} Estimates of outstanding stocks of durables are highly unrelia ble because of the difficulty of measuring depreciation.

^{note 6 in page 9} Our own econometric analysis of the time-series behaviour of durables expenditure has, however, failed to find a significant role for a cyclical attitudinal variable (such as unemployment). The research on which our current equation is based is described in K. Cuthbertson, ‘The determination of expenditure on consumer dur ables’, National Institute Economic Review, no 94, November 1980

^{note 1 in page 10} Between the first quarter of 1981 and the third quarter of 1983 the price of non-durables (as measured by the implicit deflator of the constant-price expenditure estimates) rose by over 21 per cent and the price of durables by only 12½ per cent.

^{note 2 in page 10} The proportion of respondents to the CBI Survey claiming to be working ‘below a satisfactory rate of operation’ reached a peak of 84 per cent in January 1981. By this January it had fallen to 65 per cent. However, these results are not without problems of in terpretation. For example they may be subject to subjective bias. It is possible that the reduction in the proportion of firms reporting output below capacity may to some extent reflect a reduction in general business pessimism. It is possible that after a long period of excess capacity firms tend to revise down their expectations of what constitutes a normal or ‘satisfactory’ level of output.

^{note 3 in page 10} A CBI survey asks firms what action they have taken to im prove their liquidity. In October 1982 a large proportion of firms cited cutting investment; indeed about as large as in 1980 or 1981. By last April this proportion had fallen to a relatively low level.

^{note 1 in page 13} Changes in labour costs, import costs and indirect taxes were weighted by their relative shares in consumers' expenditure: 50 per cent, 29 per cent and 21 per cent respectively. To allow for lags, a four-quarter moving average was taken of labour and import costs; indirect taxes were assumed to affect prices without delay.

^{note 1 in page 14} That is, the margin over actual costs; the margin represented by the residual in chart 8 is that over lagged costs.

^{note 2 in page 14} National Institute Economic Review, no. 106, November 1983, pp. 42-6.

^{note 3 in page 14} Longer-term comparisons may be unreliable because of doubts concerning the CSO's estimate of the capital stock. See National Institute Economic Review, op. cit., pp. 23-5.

^{note 1 in page 16} D. G. Mayes of NEDO contributed to this section.

^{note 1 in page 17} But see the cautionary footnote on p. 10.

^{note 1 in page 20} Contrary to our expectation that exporters to the UK would raise their prices by nearly the full extent of the depreciation, they appear to have taken a large cut in profit margins to maintain sales. The unusual behaviour of import prices in the first half of last year was discussed in last August's Review, pp. 15-16.

^{note 1 in page 24} The fact that the figures show a rise in the fourth quarter of each of the last three years, and a fall in the first quarter of the last two, casts some doubt on the effectiveness of the seasonal adjustments.

^{note 1 in page 25} This adjustment is based, not on additional information about employment movements, but on a mechanical extrapolation of past biases in the employment count. See p. 508 of the Employment Gazette for December 1983.