§ I start with the economic background. The strength and durability of the current economic upswing continues to confound the commentators. We can now look back to five solid years of growth at around 3 per cent. a year. [Interruption.] Even more important, 1985 was the third successive year in which we secured the elusive combination of steady growth and low inflation—the first time this has been achieved since the 1960s. In 1985 as a whole, output grew by a further 3½ per cent., which was the highest rate of growth in the European Community, and higher than the United States, too. Within that total, non-oil exports grew by 7 per cent., to reach yet another all-time record.
Despite a marked slowdown in the growth of world trade from the heady pace of 1984, the current account of the balance of payments was in surplus for the sixth year in succession—this time by some £3 billion. Inflation ended the year at around 5½ per cent. and falling. Employment continued to rise, although still not fast enough to reduce the distressingly high number of people out of work. [HON. MEMBERS: "Record unemployment."] I shall have more to say about unemployment later. Manufacturing industry, the subject of so much ill-informed comment, had another successful year, with its 167 output up by 3 per cent., its productivity up by almost 4 per cent., and both its investment and its exports up by 6 per cent.
At the heart of this success lies a remarkable turn-around in productivity. In the six years prior to 1979, Britain's annual rate of growth of manufacturing productivity, at less than 1 per cent., was the lowest of all the Group of Five major industrial nations. In the six years since 1979, our annual rate of growth of manufacturing productivity, at 3½ per cent., has been second only to that of Japan.
Looking ahead, I expect 1986 to be a further year of steady growth with low inflation. Indeed, with output forecast to rise by 3 per cent., and inflation to fall to 3½ per cent., 1986 is set to register our best overall performance in terms of output and inflation for a generation. The pattern of growth should show a satisfactory balance, too, with exports and investment expected to grow rather faster than consumer spending as a whole—as indeed they have during the sustained upswing. But the uncertainties inherent in all these forecasts, good though their track record has been, are reinforced by constant reminders that we live in an uncertain and turbulent world.
One particularly difficult aspect of this is the febrile nature of the world currency markets. There has been some improvement here. The Plaza agreement between the Group of Five Finance Ministers last September has undoubtedly led to a more sustainable pattern of exchange rates worldwide. Since that meeting, the dollar has fallen by some 16 per cent. against the other major currencies as a whole, with the pound moving up by 7 per cent., the deutschmark by 26 per cent. and the yen by 36 per cent.—a pattern broadly in line with what those of us who were party to the agreement had hoped to see.
This process will be assisted further if the passage of the Gramm-Rudman amendment manages to secure its objective of a much-needed reduction in the United States budget deficit. Meanwhile, the Plaza agreement has already succeeded in reducing, at least for the time being, the dangerous protectionist pressures that were building up in the United States. Provided we are not over-ambitious, I believe that the Plaza accord is something we can usefully build on. But the most dramatic development on the world economic scene, and one of considerable importance to this country, has of course been the collapse in the price of oil.