§ I come now to the developments of the last twelve months. In last year's Budget Speech I forecast that in the coming months home demand would, on the whole, remain firm, but that there would be a slackening in export demand and a fall in investment in stocks—not a fall in stocks, but a fall in investment in stocks. As a result, I thought that the declining trend in production which was just beginning to run might continue during the rest of the year. I felt confident, as I said then, that our balance of payments would remain strong, and I emphasised that the fall in import costs gave us an opportunity to halt the trend of rising prices from which we had so long suffered.
§ Broadly speaking, these forecasts have been borne out by events. Let us look, first, at the components of home demand, allowing in each case for the effect of price changes—say, consider them at constant prices. First, consumption expenditure remained roughly constant in the first three quarters of 1958. It then rose in the last quarter. This was largely, though not entirely, because of increased purchases of what are called consumer durables resulting from the ending of restrictions on hire purchase. Home investment in fixed capital remained steady at the record level reached in 1957. Although investment by manufacturing industry and the building of new houses by local authorities were both declining, other sectors showed a compensating increase. Current expenditure on goods and services by public authorities went down a little, again in real terms.
§ Coming now to exports, the decline which I foresaw occurred, though there was some recovery towards the end of the year. The rate of stock-building was a good deal lower than in the previous year. 30 The falling-off in these two sectors—exports and stockbuilding—was enough to bring about a decline in the level of industrial investment, and a rather smaller fall in total output. I think that the fall in total output over the year was something like 0.6 per cent. Towards the end of the year, both the index of industrial production and of total output began to rise again.
§ The level of unemployment rose through the year, as we had feared it might, and reached 2.8 per cent. in January last with, as hon. Members are aware, great unevenness in its incidence. Since then we are all glad that there has been a very welcome decline. I shall be returning to this subject later on.
§ Over the year, the Index of Retail Prices rose by exactly two points, or rather less than 2 per cent. —I am speaking of the calendar year now. The most important factor here undoubtedly was the benefit which we had received from lower import prices, and the average wage increase, also, was smaller than it has been in recent years. These developments should encourage our hopes for continuing price stability.
§ Taken altogether then, we have had a year in which much has been achieved. On the debit side, there was the increase in unemployment to which I have referred, and the check to the growth of production. On the other side, we have maintained a record level of investment and reached a new record level of consumption, combined with near price stability and a very satisfactory balance of payments. I am glad to say that the record level of total personal saving reached in 1957 was substantially repeated in 1958. As the year went on, and as it became clear that inflation had been eliminated from the economy, we were able to relax the various restrictions on demand and, indeed, to take positive steps to encourage some expansion of activity. Hence the sequence of measures of which the Committee is aware, beginning with the increase in initial allowances by 50 per cent. made in the Finance Act last year. The Bank Rate has been reduced by stages from 7 to 4 per cent. The request to the joint stock banks to limit their advances has been dispensed with, and they have used their freedom to develop their services in a number of directions with robust initiative—I might 31 almost say with gusto. The ceiling on the public investment programme has been raised and a series of increases in future investment expenditure have been approved and put in hand. The restrictions on hire purchase have been completely removed, and the raising of capital by domestic borrowers has been substantially released from control.
§ I should like to make clear that these steps have been taken progressively as soon as it became clear in each case that they were safe and desirable. In short, while the Government did not hesitate to apply restraints when these were necessary, they have been equally alert to remove them at the earliest moment when they had done their work, and to resume encouragement to expansion.