§ I start with the economic background.
Once again, we can look back on a year of steady growth and low inflation. During 1984 as a whole, inflation remained at around 5 per cent. Output grew by a further 2.5 per cent., with investment up by 6.5 per cent. and non-oil exports by 9 per cent., to reach all-time record levels in each case.
Manufacturing industry recovered particularly strongly, with output up by 3.5 per cent.—the biggest rise in any single year since 1973—exports up by 10 per cent. and investment by 13 per cent. The current account of the balance of payments has remained in surplus, for the fifth successive year. By international standards, too, the economy has performed well. Our growth was above, and our inflation below, the European Community average.
Moreover, this progress has been achieved in the teeth of the coal strike, for which, in the short term, the nation has had to pay a heavy price. In the current financial year, the coal strike has reduced the level of national output by over 1.25 per cent. and worsened the balance of payments by some £4 billion. It has increased public expenditure by £2.5 billion and public sector borrowing by £2.75 billion. It has cost us confidence abroad and jobs at home.
But the costs, both economic and constitutional, of submitting to this strike would have been infinitely greater than the costs that have been incurred in successfully 784 resisting it, and it is a remarkable tribute to the underlying strength of the British economy that it has been able to withstand so long and damaging a strike in such good shape.
Looking ahead, we are now about to embark on what will be the fifth successive year of steady growth, with output in 1985 as a whole set to rise by a further 3½ per cent. Inflation may edge up for a time, perhaps to 6 per cent. by the middle of the year, but should then fall back to 5 per cent. by the end of the year and lower still in 1986.
While there can be no disputing the strength and durability of the economic upswing, there is equally no disputing the fact that it is marred by an unacceptably high level of unemployment—and this despite the fact that the latest figures suggest that employment has risen by half a million over the past two years, with a further increase likely over the year ahead.
If at home the past year has been overshadowed by the coal strike, internationally it has been dominated by the relentless surge of the dollar, which rose by a further 30 per cent. against all the major European currencies. To finance its massive budget deficit, the United States is importing a large part of the rest of the world's savings and exporting some of its own inflation.
This is not a sustainable state of affairs. As Federal Reserve chairman Paul Volcker last month testified to Congress, the United States is living on borrowed money and borrowed time; but meanwhile, it is not only America that is paying the interest.
All this has led to one of the most turbulent years in the financial markets within living memory. It has been, and will continue to be, a time for strong nerves and sound policies.