National Institute Economic Review

World overview: Forecast summary

  • Increases in tariffs and uncertainty about both future tariff impositions and their potential implications for production activity have continued to have negative effects on global trade and industrial production.
  • Several central banks, facing below target inflation, have loosened monetary policy to mitigate the effects of slower economic growth and a deterioration in the prospects for trade. While we expect that further monetary loosening will occur, fiscal policy could be more effective in boosting demand.

Prospects for the UK economy: Forecast Summary

  • The economic outlook is clouded by significant economic and political uncertainty and depends critically on the United Kingdom’s trading relationships after Brexit. Domestic economic weakness is further amplified by slowing global demand.
  • We would not expect economic activity to be boosted by the approval of the government’s proposed Brexit deal. We estimate that, in the long run, the economy would be 3½ per cent smaller with the deal compared to continued EU membership.

Rethinking evidence-based policy

Much of public policy has in recent decades been driven by the idea of evidence-based policy – policy rooted in the principles of social science and, more specifically, empirical validation based on social and behavioural science. This article argues that evidence-based policy, while helping to improve the design of policies aimed at changing individual behaviour, lacks a recognition that individual and group choices are embedded in social relationships and institutions.

Monetary policy and government debt management during the coronavirus pandemic

This paper describes how the large budget deficits of 2020 in the United States and the United Kingdom were financed, how central banks are in practice managed not just short-term interest rates but also yields on government bonds, and how their ability to resist a post-coronavirus surge in inflation has been compromised.

How long does economic injustice last?

This article assesses whether economic injustices that took place in the past still have significant implications for the material welfare of people many years later. That issue is central to the question of how fair is the distribution of wealth and income today. It is also relevant to issues of reparations for past wrongs. I find that in standard neoclassical models of economic growth the lingering effects of injustice from more than 70 years ago are generally small.

Aspirations failure, disadvantage traps and inclusive regional policy

This paper examines the implications for regional policy of new research on the role played by a failure in the ‘capacity to aspire’ [Appadurai, A. (2004), ‘The capacity to aspire’, in Rao, V. and Walton, M. (eds), Culture and Public Action, Washington, DC: World Bank.] in perpetuating disadvantage traps. After a brief review of the magnitude of the challenge that regional policy needs to confront, it provides a summary of the theoretical and empirical literature on poverty and aspirations failure (and the associated loss of agency, beliefs and self-efficacy).

The regional consequences of new digital infrastructure: Can Welsh SMEs gain an edge from access and adoption of superfast broadband?

Across the United Kingdom public (and private) resources have been targeted on improving broadband infrastructure. While this has served to provide new opportunities for households and firms, there has been some debate around the ability of firms to take full advantage of the opportunities that arise through this evolving infrastructure. In this respect, there has been particular debate on how far small- and medium-sized enterprises (SMEs) have taken up the challenge of effectively engaging with the resource.

Do economists expect too much from expectations?

Modern economic theory gives an important role to expectations as an influence on outcomes. This paper reviews evidence on how well measures of expectations conform to outcomes. It confirms earlier results that measures taken from financial markets perform poorly as predictors of outcomes. Looking at the individual responses to the Confederation of British Industry’s Industrial Trends Survey, it does find, however, that there are significant correlations between expected and realised outcomes of wages, prices, costs orders and employment.

How to not miss a productivity revival again

Over the past 15 years, productivity growth in advanced economies has significantly slowed, giving rise to the productivity paradox of the New Digital Economy – that is, the notion of increased business spending on information and communication technology assets and digital services without a noticeable increase in productivity. We argue that time lags are the most important reason for the slow emergence of the productivity effects from digital transformation.

Commentary: Whither After Covid-19 and Brexit: A Social Science Perspective

The country is facing the twin traumas of managing two exits. Exit from the Covid-19 crisis and from the European Union. Of course, much of the world is dealing with the first and the European Union has also had the latter with which to contend. But the United Kingdom is set to lose permanently some 5–8 per cent of national income as a result of the scarring from these events. There can be little doubt that it is a dire moment in our national history.