Welsh Journals

WALES: AN ECONOMIC SURVEY David Blackaby, Philip Murphy, Nigel O'Leary and Eirian Thomas THE UK ECONOMY UK output grew by 3.9 per cent in 1993-4, almost one percentage point higher than the forecast for growth made by the Treasury in June 1994. The higher than expected out-turn for growth was due to both a higher than expected level of activity in the oil and gas extraction industries, and to a significant improve- ment in the export performance of all sectors of UK industry. In fact, during the course of 1993-4 domestic demand in the UK grew by only 3 per cent, implying that net trade contributed around 0.9 percentage points to the UK's overall growth rate. The stimulus to growth provided by the UK's steadily improving trade per- formance can be traced to a strong growth in export volumes: UK export vol- ume grew by 8.9 per cent in 1993-4 compared to a growth in imports of only 5.9 per cent over the same period. The growth in UK exports exceeded that for 1992-3 by just under 6 percentage points. This increase coincided with both a quickening recovery in international demand as well as with an improvement in the UK's price competitiveness following sterling's fall on the foreign exchange market in September 1992. It should be noted, however, that any improvement in UK price competitiveness, which was linked to Britain's exit from the ERM and subsequent fall in sterling in September 1992, was relatively short lived. Evidence suggests that exporters quickly took advantage of the September devaluation to improve their profit margins by raising the sterling price of the goods sold in foreign markets. It follows, therefore, that most of the recent growth in UK export volumes was due to a steady and sustained recovery in world trade. This grew by 8.7 per cent in 1993-4 compared to only 3 per cent in 1992-3. Moreover, whilst the major source of UK export growth in 1992-3 was outside the European Community (EC), in 1993/94 intra-EC trade became