MTFS , IS APPROPRIATE FOR THE EXPECTED ECONOMIC CONDITIONS , AND SHOULD ALLOW FOR SOME FURTHER REDUCTION OF DIRECT TAXATION OR PARTLY FOR SOME INCREASE IN PUBLIC INVESTMENT , TO THE EXTENT THAT INFRASTRUCTURE PROJECTS AVAILABLE WITH A POSITIVE RATE OF RETURN AND THE OBJECTIVE OF REDUCING PUBLIC EXPENDITURE AS A PROPORTION OF THE GROSS DOMESTIC PRODUCT ARE NOT JEOPARDIZED .
IF , HOWEVER , THE ECONOMY EXPANDS AT A SLOWER RATE THAN EXPECTED ( FOR INSTANCE , BECAUSE OF THE UNRESOLVED MINERS' DISPUTE OR LESS BUOYANT WORLD TRADE ) , THERE MAY BE UPWARD PRESSURE ON THE PSBR TARGETS . IF SUCH PRESSURE RESULTS FROM SHORT-TERM OR EXCEPTIONAL FACTORS , OR FROM A CYCLICAL SHORTAGE OF DEMAND , IT MAY BE APPROPRIATE TO ALLOW HIGHER LEVELS OF PUBLIC BORROWING .
MONETARY CONDITIONS AND PROSPECTS ARE LARGELY SATISFACTORY . THE RATES OF GROWTH OF STERLING M3 , THE BROAD MONETARY AGGREGATE , AND M0 , THE NARROW AGGREGATE , HAVE RECENTLY BOTH BEEN WITHIN THEIR TARGET RANGES ( 6 TO 10 % AND 4 TO 8 % PER ANNUM RESPECTIVELY ) . THE SHARP RISE IN INTEREST RATES WHICH OCCURRED IN JULY WAS MAINLY A RESPONSE TO INTERNATIONAL DEVELOPMENTS AND TO PARTICULAR UNCERTAINTIES AFFECTING STERLING , RELATING TO THE PROSPECTS FOR OIL PRICES AND THE MINERS' AND DOCK DISPUTES , RATHER THAN TO UNDERLYING DOMESTIC MONETARY CONDITIONS . HIGHER INTEREST RATES PUT UPWARD PRESSURE , IN THE SHORT TERM , ON THE INFLATION RATE , AND MAY BRAKE CONSUMERS' EXPENDITURE AND DISCOURAGE SOME INVESTMENT . THE RENEWED FALL IN THE BANKS' BASE RATES IN AUGUST WAS THEREFORE WELCOME , AND ANY FURTHER OPPORTUNITY TO LOWER RATES SHOULD BE TAKEN .
THERE HAS BEEN AN ENCOURAGING RISE IN EMPLOYMENT OVER THE LAST YEAR , WHICH HAS BEEN CONCENTRATED IN PARTICULAR ON FEMALE PART-TIME EMPLOYMENT . AS THE SUSTAINED RECOVERY IN ECONOMIC ACTIVITY HAS , HOWEVER , ALSO DRAWN MORE PEOPLE INTO THE LABOUR FORCE , THE LEVEL OF UNEMPLOYMENT HAS NOT FALLEN AND A HIGH AND INCREASING PROPORTION IS REMAINING UNEMPLOYED FOR LONG PERIODS . THUS , ABOUT 40 % OF THOSE AT PRESENT UNEMPLOYED HAVE BEEN WITHOUT A JOB FOR MORE THAN A YEAR .
THE GROWTH OF THE LABOUR FORCE , TOGETHER WITH THE IMPROVED PRODUCTIVITY PERFORMANCE , SUGGESTS THAT THE POTENTIAL GROWTH RATE OF THE NON-NORTH-SEA ECONOMY OVER THE NEXT FEW YEARS MAY BE RATHER HIGHER THAN THE AVERAGE RATE OBSERVED SINCE THE MID-1970S . BUT TO EXPLOIT THIS POTENTIAL FULLY , AND ASSUMING THAT CONDITIONS OF BOTH DOMESTIC AND FOREIGN DEMAND ARE APPROPRIATE , THE CURRENTLY UNUSED LABOUR RESOURCES NEED TO BE GRADUALLY BROUGHT BACK INTO EMPLOYMENT . WAGE RESTRAINT WOULD BE BENEFICIAL TO THE ECONOMY , IN ORDER TO BRING FURTHER DOWNWARD PRESSURE ON INFLATION AND TO IMPROVE COMPETITIVENESS , PARTICULARLY BEARING IN MIND THAT SEVERAL IMPORTANT TRADING PARTNERS HAVE NOW ENTERED A PERIOD OF VIRTUAL PRICE STABILITY . FURTHERMORE , WAGES IN CERTAIN UNCOMPETITIVE SECTORS REQUIRE RELATIVE DOWNWARD ADJUSTMENT , ALLOWING APPROPRIATE DIFFERENTIALS TO DEVELOP