1970s Key Facts

1970s Key Facts

1970 - 1973 Boom years: policy priority given to growth through fiscal and monetary expansion (PSBR rises from 0% to 6.5% of GDP, M3 rises 25% in '71 and '72, so the growth of real GDP rises from 2% to 8%. Balance of payments and exchange rate (ER) initially strong, with a current account surplus in '69-'72 (due to '67 devaluation, etc.). But wages policy, public sector prices policy and monetary expansion store up trouble, particularly inflation.
1974 - 1975 Crisis: 4-fold price rise for oil, miners' strike, 3 day week, political vacillation. Balance of payments current account deficit of £3.5 billion in 74,, and the effective exchange rate index falls from 83 to 73. Stagflation hits the world, then Britain. Real GDP falls, unemployment almost doubles, and inflation reaches record heights (24% in '75).
'Try everything' policy: PSBR rises to 11.5% of GDP; money is controlled and grows by less than 10%. Pay policy from August '75, for 3 years. Support from the IMF for our almost-exhausted reserves at the end of '76, following a collapse of the £ to only 60% of its '71 value.
1976 - mid 1979 Recovery. Uncertain but positive growth; unemployment steady around 5% following a shake-out of labour; inflation failing to under 10%. Balance of payments current account again in surplus in '78, and slight gains for the ER while still remaining competitive in trade. Apparent success encouraged by 15% growth of M3 in '78, and North Sea oil coming on tap.
Pre-election period: a loss of control. The collapse of pay policy in the 'winter of discontent' and postponed public sector settlements. Rising inflation, rising ER, and a Balance of payments current account deficit.
mid 1979 'Pure' monetarism. 17% interest rates, a switch from direct to indirect taxation in June 79, and an end to direct market controls. But further OPEC price rises repeat '74's stagflation, and undermine the policy.

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