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11657-Economic Survey-Galley 21

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years (excluding those for strategic stockpiling) is taken to be about £125 million (nearly 5 per cent.). On these assumptions, the burden of the con- tinued deterioration in the terms of trade will be met only to a small extent by a greater call on our resources, but chiefly by a decline in the balance of payments surplus. Thus, by and large, the real increase in resources that can be expected to be available for use at home will depend upon the growth of production at home.

113. The increase in Government expenditure for defence and civil purposes will be larger than this increase in resources.(1) Consequently, either investment or consumption must suffer a real decline in 1951 by comparison with 1950. As indicated above, fixed investment may fall some- what, owing to the impact of defence expenditure upon the investment industries; on the other hand, the increase in stocks of materials and of work in progress may be rather larger than in 1951. On balance, therefore, total investment in real terms may show a slight increase. It follows that, even if industrial production increases by 4 per cent., there must be some decline in personal consumption.

(1) In the table in paragraph 111 imports of food and materials for stragetic stockpiling are excluded both from imports and from public authorities' expenditure or domestic invest- ment. Since it is proposed to pay for purchases for stockpiling through a deterioration in the capital account, such imports will have no other repercussions on the economy. Con- sequently the difficulty in foreseeing how much it will be possible to purchase does not add. any further uncertainty to the estimates of the changes in items shown in the table.

114. The discussion of the prospects for the textile and engineering industries indicates where part of the reduction in real consumption will take place. There will probably be less clothing and household textiles available for ordinary consumers, both because of the needs of the Armed Forces and because of increased exports; supplies in 1951 will, however, be supported by a good stock position, and higher prices will no doubt restrict consumer demand. Supplies of durable consumer goods will also be reduced for the same reasons. Food consumption is not likely to be affected in the aggregate, and supplies of main controlled foods will probably be much the same as in 1950. There will be some increase in the supply of eggs, sugar and sweets, but there will be less meat because of the temporary suspension of supplies from the Argentine. Table 22 records the progress of food consumption in recent years.

115. In this analysis of the likely changes in real output and expenditure between 1950 and 1951, the forecast of an increase of 4 per cent. in industrial output is of crucial importance. The basis of this forecast has already been discussed, and it has been made clear that it is, and must be, a most uncertain figure. How the conclusions just reached would be affected in detail by reduced productivity would, of course, depend largely upon what type of output fell short. But a reduction of 1 per cent. in the forecast would involve a reduction of nearly £100 million in our total resources, and in conformity with the general policies described in this survey the aim would be to concentrate this reduction, so far as possible, upon consumption.

The Problem of Inflation

116. The changes in the physical quantities of supplies underly the financial problems that remain to be discussed. Apart from the physical changes some increase in prices is inevitable, chiefly because of the rise in import prices, but possibly also because of higher costs of production at home if productivity falls below the increase in wages. It remains highly important that the increase in prices should be kept to a minimum and that the existing tendencies should not be encouraged by an excessive level of demand. Inflationary conditions of demand occur when the nation as a whole seeks to spend on the supplies available more money than those supplies cost. The problem for financial policy is to ensure that sufficient purchasing power is drawn off in taxation or set aside in savings to prevent such an excess arising. Before the forward problem is discussed, however, it will be useful to analyse in broad terms the financial situation in 1950 as a whole. 117. The evidence seems to show that by the middle of 1950 steady adherence to the policy of disinflation had brought about a fairly satis- factory balance between total demand and total supply. Demand continued to run at a high level, but not at so high a level as to cause any marked symptoms of inflation. The level of unemployment remained extremely low, but was slightly higher on average over the year than in 1949. continued rise of consumer prices during the year was due to the rise in import prices rather than to any inflation of internal costs. There was a general tendency for demand to become more competitive and increas587 Supplies made it possible for many price controls to be suspended by the middle of the year. There was a general improvement of the retail stock position. Apart from a few special types of goods largely reserved for export, such as motor cars, whisky and nylon stockings, there were few marked shortages in the shops.

The

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