Annex A to Chapter 3The economy in the medium term3A.1 This Annex describes the assumptions for output growth and inflation on which the medium-term fiscal projections presented in Chapter 4 are based. It also summarises the economic assumptions which underlie the public expenditure figures in Chapter 6.Output3A.2 The illustrative paths for output and inflation are set out in Table 3A.1. At an average of 2 3/4 per cent a year, the growth of non-North Sea GDP remains a little above trend - estimated to be 2 to 2 1/2 per cent a year - over the medium term. This implies that the margin of spare capacity gradually falls, with output returning to around trend levels by the end of the period.[See printed copy for table] Inflation3A.3 With continuing spare capacity in the economy in the next few years, downwards pressure on inflation is maintained. The increase in the GDP deflator is assumed to fall to 2 per cent by 1998-99. Its path is consistent with RPI excluding MIPs inflation in the lower half of the Government's 1 to 4 per cent target range.[See printed copy for chart] Changes since the last MTFS3A.4 Table 3A.2 compares the medium-term economic projections with those in the November 1993 MTFS. The table shows that output has been higher and inflation lower than expected in 1994-95. The small downward revision to the rate of output growth in the medium term is in part a consequence of this - some of the spare capacity has been used up so there is less room for non-inflationary growth over the medium term.[See printed copy for table] Assumptions for planning public expenditure3A.5 The economic assumptions used in the public expenditure plans are set out in Table 3A.3. The assumptions that underlay the November 1993 spending plans are also shown. The assumptions for the GDP deflator in 1994-95 and 1995-96 are consistent with the short-term forecast described above. Those for later years, and all other figures, are assumptions not forecasts.[See printed copy for table]
To continue or to go to contents
|