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Fifty years’ history of inflation as told by the British press

From the price of food, to the amount of disposable income we have left after paying our mortgages and bills, inflation decides how rich we feel on a day-to-day basis.

All the while in the background we have running commentary from the newspapers which always seem ready with pithy, scary or rallying headlines depending on which way the line has been pointing on the financial graphs in the previous 24 hours.

Over the past 50 years the UK has witnessed significant fluctuations in its inflation rates, experiencing both periods of high inflation, low inflation, and relative stability. No one will have escaped the news in recent months about inflation running at highs unseen for many years and then reducing considerably more quickly than expected.

But let’s take a step back from the drama and look at the broader picture by examining what has happened in recent history and what the newspapers have been saying along the way.

The Swinging Sixties and Troublesome Seventies In the 1960s inflation was relatively low, kept down by the still frugal post-war monetary policies.

As the UK emerged into a new decade in the 1970s, however, there were a series of challenges which threatened this. Most notably the global oil crisis which significantly increased energy prices, triggering a rise in production costs.

There are distinct echoes of this in the Russia-Ukraine war in 2022. Back in the 70s the UK had other problems to deal with at the same time, notably labour strikes and the accompanying social unrest. This led to wage price spirals and accelerating inflation.

The papers of the era were filled with stories about these social, political and economic stresses. The UK’s economic situation was a key interest to international press. The NY Times on 15th November 1975 reported: Britain’s inflation remains the worst among the leading non-Communist industrial nations….The Retail Price Index..rose in the 12 months ended October 31st by 25.9 percent, compared with a 26.6 percent rise in the 12months ended September 30th, and a record 26.9 percent in the August 31st period….The slowing in the rise of prices is expected to be hailed as an achievement by Prime Minister Harold Wilson’s Labour Government…it has been carrying on a big publicity campaign to enlist support for its anti-inflation policy.

Thatcher and the Battle Against Inflation

By the time the 1980s started we had a new prime minister and a Government with one key objective in mind – to bring down inflation.  

Thatcher’s early financial policies were formulated to deliver this goal, and so the UK saw a reduction in government intervention and stricter controls on money supply. The strikes continued alongside the strict fiscal measures which resulted in austerity but also falling inflation. The result being that by the mid-1980s inflation was back to single figures.

In July 1984 The Guardian reported: The Government won some reassurance for its economic strategy yesterday as calm returned to City currency and share markets and news of a standstill in the rate of inflation supported the Chancellor’s belief that the battle against rising prices is being contained….The Chancellor’s confidence in containing inflation was supported by the fact the retail price index…rose by only 0.3 per cent in June…The Government remains firm in the belief that the recent increase in interest rates will be temporary and its counter inflation strategy will also be helped by falls in some commodity markets.

The Great Moderation and New Millennium

During the 1990s and early 2000’s inflation remained low and largely predictable.

This was put down to an improved monetary policy framework and increased central bank independence. The Bank of England’s objective was to maintain monetary stability with a focus on the management of inflation, primarily through the use of interest rates.

Despite external global political and economic shocks such as war, terrorism and the bursting of the tech bubble, relative stability was achieved.

In retrospect of course it is clear in this environment economic growth and confidence in the financial system flourished, but at the time no one was certain and the newspapers continued to report on questions about what the outcomes would be.

In January 1998 the Independent reported under a headline ‘Is it deflation or inflation we should fear the most in 1998?’ All the economists surveyed each month by the Treasury agree that growth in the UK will slow in 1998….But forecasters could not disagree more about the scale of the slowdown. Predictions for growth in 1998 range from 1.5 per cent to 3.6 per cent, and for the target measure of inflation from 2 per cent to 4 per cent.

The Global Financial Crisis and Post-recession challenges

The 2008 Global Financial Crisis destroyed confidence in the system. The UK entered recession, businesses suffered and householders worried about meeting mortgage payments.

In response the Bank of England implemented expansionary monetary policies including low interest rates and quantitative easing. This helped to stimulate growth and combat deflationary pressures. Some warned of the longer term potential drawbacks.

At the very start of 2008 the Daily Mail reported Floods, foot-and-mouth and the fiasco of Northern Rock; sensitive computer files gone missing by the millions, Britain shoe-horned into the EU constitution without a by-your-leave; humiliation for England’s footballers, stumbling failure at cricket and gallant defeat (after a miserable start) in the Rugby World Cup…We still haven’t come anywhere near the end of the global credit crunch. House prices may slump 10 per cent. Growth is slowing. The pound is sinking in value, its decline disguised only by the dramatic fall in the dollar. Inflation rears its ugly head. Government debt is sky high.

Following this less-than-cheery analysis the UK went on to experience more fundamental shifts in its system – Brexit and austerity.

Austerity was Government policy designed to bring down state debt but it also had impacts on key social systems upon which many depend including healthcare, education, and business support. Brexit brought more uncertainty and doubt. Then of course all of this was compounded by COVID 19 and the Russia-Ukraine war. Since which the Bank of England has been aiming to strike a balance between supporting economic recovery and controlling inflationary risks.

So overall, the last fifty years have seen a huge roller coaster ride for inflation. When it has  been climbing, the papers worry about how and when it will come down. When it is has been low, the papers worry about when and why it will rise.

So, how to avoid the drama? Perhaps we all just need to avoid the business pages!

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January 2024