Governments struggled to survive in a decade in which the populace went to
the polls no fewer than four times, in the last of which a lame duck Labour
prime minister had taken over part-way through a parliament and then lost a vote
of confidence and then the general election. Industrial action the oxymoron
that defined ‘the British disease’ was truly crippling, destroying the car
industry and bringing the country almost to its knees as London’s Leicester
Square filled up with uncollected rubbish and rats while the army put out
fires. You can add to this list of disasters flared trousers.
And then there was inflation. Right, proper inflation we had back then,
double-digit stuff that, thanks in part to a particularly hopeless Conservative
government that ducked the problem by fuelling it, zoomed right on upwards
towards 28%, if memory serves. Interest rates went all to hell of course, too.
Base rates in the high-teens by the end of the decade, with only a toe-hold on
single digits throughout the ensuing 80s.
So as we sit here watching inflation “soar” to a dizzy 4-point-something
percent (or is it 3-point-something? We only had one inflation index to contend
with in the 70s), it’s easy to think that this is much ado about not very much.
If that’s your view then read Phil Thornton’s article on page 15 about the
looming battle between the Bank of England, which wants to go hawkish on
inflation, and the Treasury, which would prefer it if the Bank could also bear
in mind its obligations to support the government’s objectives for growth and
The Bank must not lose its nerve, nor undermine the fragile confidence in the
market that it will do the job that needs to be done. ‘A little inflation’ is
like being ‘a little pregnant’. It is a tax on the poor and a corrosive
substance that eats away at industrial investment. See how long gilt yields are
already edging up as inflation expectations start to ooze into the financial
markets. Governor Mervyn King is talking tough, but it isn’t solely his
decision. May he embolden the monetary policy committee to prevent rising
commodity costs from feeding through the whole supply chain and into wage
It makes me wonder, though: what do they teach Treasury economists these
days? Do they still think you can have inflation or unemployment? Does the
concept of stagflation not feature yet on a training programme still stuck in a
pre-war Keynesian time warp? Or is there simply no one old enough to remember
what it was like? Either way, the Treasury must yield to the Bank on this one.
Stagflation is a phenomenon (and a word) as ugly as a pair of flares.
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