§ I turn now to our specifically national problems. Britain entered 1974—the year of the oil crisis—in a worse condition than nearly all her partners in the industrial world. Growth had come to a halt even before the three-day week depressed output further. Our balance of payments deficit, as the Governor of the Bank of England reminded us last January, was already running at a rate equivalent to 4 per cent. of our gross national product, before the increase in oil prices had had more than a marginal effect.
§ As I told the House in March, my job on taking office as Chancellor of the Exchequer in a minority Government was to stop the rot. I think I can claim to have succeeded at least in this. Despite two months in which our national output actually fell, the level of total output has I believe now recovered at least to about where it was a year ago.
§ The volume of personal consumption, which fell in the first half of the year, recovered in the third quarter. The provisional estimate for the volume of retail sales last month shows it continuing at the rate reached last quarter.
§ Investment in manufacturing industry rose strongly in the first half of this year, despite the interruption of the three-day week. But there are now signs that some investment is being postponed or even cancelled—mainly for reasons I shall refer to later.
§ When I spoke to the House in March we all believed that demand would be substantially increased in the following months by the need to replace large volumes of stocks which had been used up during the three-day week. We now know that stocks were drawn down early 246 in the year less than we then expected, so the scale of replenishment has been smaller, too.
§ I expect the House is as puzzled as I am by some aspects of the unemployment figures. They have reflected some easing in the demand for labour. By mid-October the number of unemployed was about 100,000 higher than a year earlier when there was widespread over-heating in the economy. But in many areas of the economy the demand for labour still seems to be strong, particularly for skilled workers in most of engineering. The latest seasonally adjusted figures suggest that unemployment is increasing more slowly than most of us expected. I hope that the doubling of the regional employment premium I announced in July may be one reason for this.
§ It is exceptionally difficult to judge the immediate prospects for demand and activity in Britain. Consumer spending may continue to rise. Some expenditure in the public sector will also be increasing. In particular some of the nationalised industries are engaged in major investment programmes. Current expenditure by the local authorities will be growing, but less fast than in recent years. On balance, the prospect seems to be of a slow continued growth in both demand and output. Unemployment is more likely to rise than to fall, though the estimated growth of demand should prevent it from rising fast—subject to one condition T shall come to in a moment.