The background to this year's Budget is the healthy growth in output that we are seeing in Britain and overseas. The recovery has been under way at a modest pace for over two and a half years. It is now stronger and output has grown by over 4 per cent. over the past year. That is easily the fastest rate of growth of any of the major European economies. The forecasts I am publishing with this Budget show the economy expected to grow by 3¼ per cent. next year.
As the recovery has got stronger, growth has come increasingly from exports. Over the last year, British exports have grown by over 8 per cent. Investment in plant and machinery has grown by over 5 per cent. Consumer demand has increased by a more modest 2 to 3 per cent. That is a very healthy shape for this stage of the recovery and bodes well for our long-term future as a competitive industrial economy.
Our exporters have been able to take advantage of the pick-up in growth overseas, by keeping their costs down and raising their productivity. Our producers have succeeded in improving their performance in domestic markets, so that while exports continue to rise, imports are little changed. Overall, I expect our balance of payments on current account to improve by over £6 billion this year.
An improving balance of payments is remarkable for this country at a time when the economy is growing stronger. More encouragingly still, inflation has remained low.
Underlying inflation has fallen to levels that we have not seen for a generation. Indeed, only about one third of the adult population of this country have ever experienced such low inflation during their adult life. The other two thirds are still finding it difficult to adjust to the change to a low-inflation economy. [Interruption.] They are not going to adjust back under the Labour party, either.
Unemployment is on a clear downward trend, having fallen by over 450,000 since December 1992. The United Kingdom, as I have already said, is the only major economy in Europe where unemployment has fallen over the past year.
The unemployment rate in this country is lower than the average for the European Union. And the number of people in work is rising. The "Labour Force Survey" shows an increase of 226,000 in the number of people in work in the last 12 months. That means real new jobs for people up and down the country.
We are seeing strong output growth, strong export growth, falling unemployment, an improving balance of payments and low inflation. That combination is almost unique in this country since the war.
But let us be under no illusions. Those promising conditions have to be sustained if they are to deliver higher living standards and secure jobs for men and women. And these promising conditions have arisen at all only because of the difficult decisions that the Government have been prepared to take in recent years.
We must not now throw away the gains that have been made by turning to some short-term dash for yet faster growth. Growth will be sustained only if we keep the lid on inflation, get public borrowing down further, and push ahead with measures which strengthen the industrial economy. That is the way to convert growth into prosperity and jobs.
That way lies the virtuous circle of improved competitiveness, rising productivity, economic growth, low inflation, and more jobs. We must not change our minds now for the sake of short-term popularity. [interruption.] Those who bask in their short-term popularity and neglect the need for sound economic measures will live to rue the day hereafter. Only by keeping our nerve and sticking to the determined policies that we have put in place over the past couple of years will we be able to enjoy the full fruits of improved economic performance in rising prosperity and lower unemployment.