1980s Key Facts

1980s Key Facts

1979 - 1982 RECESSION. UK enters recession before the rest of world. Tight fiscal & monetary policy - interest rates at 17%, money supply targets 6- 10% and government expend. cuts of £3.5bn. announced for '80-'81. "Winter of Discontent" - end of pay policy - 29m working days lost through strikes (largest annual total since general strike). Government pays large public sector pay increases as recommended by Clegg Commission. Introduction of Tax & Price Index in Aug.'79 and in Oct.' 79 removal of exchange controls.
1980 Inflation peaks at 20% mid-year. Unemployment. increasing fast, tops 2m late '80. Attained self-sufficiency in oil. Interest rates start to come down - MLR reduced to 16% in July and 14% in Nov. Sterling over-valued - reaches peak £1 = $2.39 at end of year. Effective exch. rate up 18% since'79. NEGATIVE growth.
1981 Inflation down to 12%, continued NEGATIVE growth. Investment down 11 % since '79. Sterling dropped below $2 mid-year as USA takes the monetarist lead with interest rates peaking at 14%. Effective exchange rate down 11% from 1980 peak. Record surplus on balance of payments account of £6.Sbn due to high ER and NSO surplus. MLR down to 12%. EEC budget refunds of £700m and £900m in 1980-81.
Start of govt's privatisation plans - Nov.'81 sale of half Cable & Wireless (oversubscribed 6 times), Feb.'82 Sale of Amersham International (over- subscribed 23 times), Nov.'82 sale of 51% of Britoil (under-subscribed 5 times).
Government claws back much of '79 tax reduction by not indexing personal allowances, continued fiscal contraction to reduce the PSBR. Aug.'81 - Changes in monetary management, RAR abandoned, MLR suspended, new arrangements for B of E's open-market operations introduced.
1982 Inflation continues to drop, unemployment to rise. Growth rate of GDP recovers slightly. £ continues to depreciate against $, whilst effective ER stabilises at '81 level. Balance of payment's surplus of £4.6bn for year. Bankruptcies of firms at record level of 11,131 in 1982. NSO production up to 2m barrels a day. PSBR down to 3.8% of GDR Task force sets sail to the Falklands in April - initial cost of war to government - £800m. Substantially more over the long-term.
1983 RECOVERY? Re-election of Tory/monetarist government Growth of money supply inside target ranges for first time in 4 years. Jan.'83 - inflation below 5% and unemployment. tops 3m. £ goes below $1.50. Balance of payments falls into deficit on current account. First ever manufacturing deficit. Manufacturing output 15% below'79 level. Back to positive growth while rest of world is still in recession. Sept.'83 Start of YTS at cost of £1bn to government Nov.'83: Start of miners strike over pit closures (to last for a year).
1984 Concern about oil prices. Strong $ (because of high US budget deficit and high US rate of interest and concern about level of government spending and borrowing meant £ fell throughout '84 from approx. $1.45 to $1.20. Fell very sharply in December. Growth 2.7%, but lower due to coal strike. Inflation crept up to 5% partly due to drop in £. Unemployment continued to rise - 3.05m by end of '84. Balance of payment's current account just in surplus £0.1 bn. Interest rates up to 12% in July but fell to 9.5 % by Dec. Sale Of BRITISH TELECOM in November.
1985 Sterling reached low of $1.05, but recovered gradually to end year at $1.44. Growth increased to 3.5% (after coal strike?), while unemployment levels out at 3.1m. Inflation edges up to 5.9%. Restructuring of taxes in Budget but no cuts in rates. Target for £M3 suspended. Reintroduction of MLR in Jan. to try to help exchange rate control. Current account surplus of £3.5bn mainly thanks to good growth in invisibles.
1986 Price of oil drops by nearly 50% and government admits concern for exchange rate as a target (substitute for money supply targets?). 'Big Bang' deregulation of stock exchange in October. Flotation of British Gas (using 'Sid') and TSB. £ relatively weak ended year at $1.43. Growth continues reasonable at 2.5%, with Inflation at 3.3%. Deterioration of current account (deficit of £10bn). Unemployment stable at 3m. lp cut in basic rate (first cut since '79) in Budget and various measures to widen share ownership (PEP's). Big year for merger and takeover activity (29 names wiped off UK Top 500 companies list - Guinness takeover of Distillers, Habitat merged with BUS etc.). Increase in government expenditure announced in Autumn Statement.
1987 GENERAL ELECTION YEAR - INCREASED MAJORITY FOR TORIES. High growth rate - 4% - mainly from consumption and export growth. Unemployment down to 2.65m (9.8% of workforce) by Dec'87. Current account deteriorates further to deficit of £2.5bn. Oil balance stable at £4.0bn surplus. Inflation up from '86 at 4% average for year, but rising at end of year (nearly 5 %). High growth led to higher tax revenue than expected and so PSBR was only £1.0bn. Budget knocked 2p off income tax, but put nothing on excise duties. The world's favourite airline (BA) was privatised in Feb. - comfortably over- subscribed. Last remains of BP in government hands also flogged - but flopped disastrously because October 19th - BLACK MONDAY - Footsie index fell 250 points - 11 % in one day. Overall, shares lost 35 % at their worst from the '87 high point. Merger activity dropped off in light of crash but BA was allowed by MMC to merge with British Caledonian. Sterling strengthened overall through year to end year at $1.81 - an average of $1.61 through year.
1988 Increasing rate of growth - 4.5% for the year. Fuelled by strong expansion in consumer demand. BUT problems starting to show - Balance of Trade plummets to £20bn deficit, inflation edges up to 6.4%. Interest rates edge up for most of the year from 8.5% on Jan.1st to 13% by end of Nov. with 2 reductions to ease pressure on the £. £ strong for most of the year and fluctuated between $1.87 and $1.70. Ended year at $1.85. Unemployment falls by 50,000 per month - 7.6% at end of '88.
British Steel privatised December - comfortably over-subscribed, but prices didn't rise much at first. British Aerospace buys Rover Group with government loss of around £700m in debt write-offs and sweeteners". Coal industry announces further 20,000 job losses and 10 pit closures. Merger activity builds up again after a fall in '87 because of Stock Market Crash. George Bush wins US Presidential election. Budget cuts basic rate of income tax by 2p to 25p in £, and top rates from 60p to 40p (at cost to revenue of £4.25bn). Independent taxation of husbands and wives introduced, personal allowances increased at twice rate of inflation and all excise duties increased. Oil prices fall during year to $12-$13 per barrel and so oil balance declines further to £2.5bn surplus. Not enough to help visible balance as non-oil balance plummets to £22bn deficit. Main problem is high demand growth and insufficient domestic capacity growth and so interest rates go up to try to 'slow-down' economy and contain inflation.
1989 Growth fell to 2% for the year - lowest rate since 1982. Higher growth from '88 helped reduce unemployment further to 1.67m or 5.9% of workforce. Balance of payment's worsens further still to visible deficit of £24bn. Invisibles only add £4bn, so current account deficit of £20bn. High consumer demand still causing problems, but slowed down slightly during year as rate of interest goes up. Oil balance now only £1bn surplus. Inflation nudges up further to 7.5%. Buoyant demand though gives government a large budget surplus of £14.3bn (3% of GDP). So we now call PSBR, the PSDR (Public Sector Debt Repayment).
Strong $ (tighter US fiscal policy) & concern over UK economy put £ under pressure during year and so £ dropped during year from $1.82 at start to finish at $1.61. Interest rates continued to rise from 13% to 15% in October to try to contain balance of payments and inflation and helped support £. Budget was boring compared to '88 with few major changes except to National Insurance.
Markets got concerned in middle of year over policy differences between Thatcher and Lawson and disagreement (mainly over EMS and rate of interest policy) culminated in Lawson resignation on October 26th. Madrid EC summit adopts Delors plan for Economic and Monetary Union.
10 water companies of England and Wales privatised in November with a cost to government of £6bn. in debt write-offs and 'environmental improvements'. Sale raised £5.25bn amid criticism of them being sold too cheaply - sale 4 times over-subscribed and shares rose on average 45p on first day of trading. How could you say too cheap!?
Lawson got out at just right time - John Major takes over as Chancellor and 1990/91 - the onset of recession!

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