The first demonstration of laser action in ruby was made in 1960 by T. H. Maiman of Hughes Research Laboratories, USA. Many laboratories worldwide began the search for lasers using different materials, operating at different wavelengths. In the UK, academia, industry and the central laboratories took up the challenge from the earliest days to develop these systems for a broad range of applications. This historical review looks at the contribution the UK has made to the advancement of the technology, the development of systems and components and their exploitation over the last 60 years.

There is a strong case for boosting public investment in many countries based on identified country-specific structural weaknesses and the relatively low levels of such investment. This paper analyses the potential macroeconomic benefits of increased public investment using simulations on NiGEM. The results suggest that the supply-side benefits from raising potential output are likely to lead to more favourable macroeconomic outcomes than those from using many other standard fiscal instruments, although it takes many years for the full effect on potential output to accumulate. Variant model simulations also suggest that a fiscal stimulus will be more effective in the short term the less it is offset by monetary policy, making well-targeted policy initiatives especially effective when policy interest rates are at the zero lower bound. Globalisation implies that spillover effects from collective action are larger than in the past, boosting multipliers relative to the case where countries take individual action, particularly in the first two years after the policy change. Such spillovers are likely to be particularly important in small open European economies, especially those strongly integrated in European value chains.

After a pronounced slowdown at the turn of the year, economic growth has recovered during the course of 2002. Revised estimates now suggest that GDP rose by 0.6 per cent in the second quarter and, based on our monthly GDP projections, we estimate that growth was 0.5 per cent in the third quarter, marginally below trend rates. It now appears increasingly unlikely that the Budget forecast of 2-2½ per cent growth in 2002 can be attained, and we expect to see growth of 1.4 per cent for the year as a whole.

The pattern of growth in the real economy is in some sense a mirror image of what was happening a year ago. Then there was considerable concern that stagnating international trade was depressing the performance of manufacturing at home and, through this, having a damaging effect on economic growth overall. Now there are the first signs that output growth is being led by a revival of manufacturing which, in turn, is probably linked to a revival of world trade. A year ago the US$ was close to record highs against the euro and sterling had been dragged up in its wake. Now a weakening US$ is taking sterling with it, so the exchange rate against the euro, although still high, is well below the values of last year. At the same time share prices have fallen from levels of last year which, although below their peaks, were still grossly inflated. At current levels they will once again encourage businesses to make sensible use of shareholders' capital and come to sensible decisions about appropriate forms of financing. On the other hand the recent growth rate of house prices is likely to prove unsustainable.

At the heart of the evaluation of the economic costs and benefits of adopting the euro lies the question of whether living standards would be higher outside or inside the Euro Area. It is well established that there is a strong positive relationship between openness to international trade and investment and the performance of the UK economy. European integration is continuing to help raise the openness of the UK economy, as well as stimulating product market competition and making the UK a more attractive location for mobile investments. This provides an additional channel through which potential output in the UK is linked to the degree of integration with the rest of Europe. Adopting a common currency may bring modest further gains to productivity and living standards by stimulating trade as well as competition. Reducing exchange rate volatility may also raise the level of fixed capital investment in the UK, although the direct evidence for this is limited, and stimulate inward investment from outside Europe, but could reduce the level of foreign direct investment between the UK and the Euro Area. However it is far from clear how big the net benefits might be or how soon they might start to appear. If the UK were to enter monetary union at a significantly overvalued real exchange rate the gains might never materialise at all and there could easily be significant net losses.

Ahead of the official data, we anticipate only slow growth in the first quarter of this year. GDP stagnated in the fourth quarter of 2001, with continued growth in the service sector being offset by a sharp contraction of 2.2 per cent in industrial production. It appears increasingly likely that this was just a temporary pause. Whilst growth is expected to be faster later in the year, as shown in chart 1, the relatively poor performance at the turn of the year and lower projections for government spending growth this year mean that we now expect only a 1.8 per cent rise in GDP in the year as a whole, below the bottom end of the range projected by the Treasury in the recent Budget forecast. The risk of the green shoots of recovery failing to consolidate remains as a downside risk to our central forecast.

The production of this forecast is supported by the Institute's Corporate Members: Bank of England, Barclays Bank plc, Consignia plc, Dixons plc, GlaxoSmithKline, INVESCO Europe Ltd, Marks and Spencer plc, Morgan Stanley Dean Witter (Europe) Ltd, Morley Fund Management, The National Grid Company plc, Nomura Research Institute Europe Ltd, Pearson plc, Rio Tinto plc, Standard Chartered Bank, UBS Warburg, Unilever plc and Willis Corroon Group plc.

The production of this forecast is supported by the Institute's Corporate Members: Bank of England, Barclays Bank plc, Dixons plc, GlaxoSmithKline, INVESCO Europe Ltd, Marks and Spencer plc, Morgan Stanley Dean Witter (Europe) Ltd, Morley Fund Management, The National Grid Company plc, Nomura Research Institute Europe Ltd, Pearson plc, The Post Office, Rio Tinto plc, Standard Chartered Bank, UBS Warburg, Unilever plc and Willis Corroon Group plc.