The ABC of the UK economy

Article Abstract:

Gross domestic product (GDP) is a measure of economic activity and when it grows above average, some economists fear this could cause inflation. An expanding money supply is also seen as a cause of inflation. There are a number of ways of defining money such as M0 and M4. Capacity constraints are also seen as a cause of inflation since firms are constrained when raw material and labor costs rise. Low levels of unemployment are seen as especially dangerous. The price of government debt rises when government spending is low since this means that interest rates are less likely to rise.

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The partial death of inflation

Article Abstract:

UK inflation is subdued and manufacturing output prices appear to be rising a low rates not seen since summer 1967. The high value of pound sterling is seen as one factor contributing to low inflation. There is still concern that retailers' profit margins could rise, adding to inflationary pressure, and wage inflation could become a problem as unemployment falls. Pound sterling's rise may have a limited impact on depressing prices, and the pound could drop in value later in 1997.

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Only one issue

Article Abstract:

NatWest Markets' Geoffrey Dicks sees UK inflation as a major uncertainty for 1997. Gross domestic product (GDP) is forecast to grow by between 3% and 4%, consumer spending is forecast to rise by 4% and investment is increasing. High consumer spending levels will not necessarily push up inflation. Wage settlements are low and productivity rises should help reduce unit costs, and this and the high value of pound sterling should help keep inflation low.

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