Research on the Great Inflation in the UK during the 1970s has often focused on whether it was caused by ‘bad luck’—such as large commodity price and supply-side shocks—or ‘bad policy,’ including failures in monetary and income policies. However, a new staff working paper by Michael Bordo, Oliver Bush, and Ryland Thomas suggests that these factors alone do not fully explain the persistence of inflation during this period.
The authors examined historical data from the 1950s to the early 1990s and concluded that underlying inflation and expectations were influenced by a series of regime shifts. These shifts were linked to significant changes in fiscal policy, monetary policy, and union reforms. “Our empirical evidence suggests that fiscal policy was at the heart of many of the problems in the UK during the Great Inflation,” they said.
According to their findings, unlike most periods in British history where fiscal policy aimed to stabilize public finances, it was instead used to maintain low unemployment rates and promote growth. Additionally, fiscal measures were employed to subsidize those adversely affected by trade shocks and to secure agreements with unions.
Published on July 4, 2025, this research aims to foster discussion about these issues by reconsidering both historical and empirical records related to inflation.
Information from this article can be found here.
