1990s Key Facts

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1990s Key Facts

Key facts on 1990

1990 - Inflation 9% for the year - not looking so good. Peaked at 10.9% in September & October - higher than predicted. Everyone surprised when in October 1990 - UK joined ERM. Presumably aimed to help keep inflation down. Inflation not helped by 10% earnings growth. John Major's only budget in March - not a very exciting one, but he decided not to raise the earnings threshold and so increased the tax burden by £430m. Announced various incentives to help savings - TESSA's (tax exempt special savings accounts). Still had a PSDR, but it was starting to shrink - £5bn surplus in 1989/90 compared to £14.5bn in 1988/89. Bank of England resumed selling bonds after a 28 month gap due to deterioration in finances.

Monetary policy - MO growth fell to 4.9%, first time it had been properly on target since the 1998 Budget. Interest rates were cut in October 1990 by 1 % to 14% to try to alleviate slowdown in activity. Freedom to manoeuvre now severely hampered by membership of the ERM. Monetary policy now linked to Europe (Germany?).

April 1990 - electricity industry was restructured prior to privatisation. 16 new electricity companies created in England and Wales, 3 new generators - National Power, Powergen and Nuclear Electric (all from the old CEGB). National Power and Powergen were sold, Nuclear Electric remained in the public sector. 11 Dec. - they were all sold and large premiums were recorded. Most were well over-subscribed.

June 1990 - oil price fell to $15 a barrel, the lowest since Dec.'88. But prices began to climb as fears of war in the Gulf took hold. Increased production from Saudi Arabia kept prices down to $30 at the end of the year.

Retail sales were depressed in 1990 - 1.1 % fall for the year. House prices suffered sharp falls, particularly in Southern Britain, but average remained around stable thanks to prices in Scotland and parts of the North continuing to rise.

Balance of payments - Current account deficit £14.4bn, visible trade £18.6bn, not exactly a classic performance, but nevertheless an improvement on 1989. Imports grew 3%, while exports managed 11%, but import growth probably reflected mainly the recession and the cutback in consumer spending. However, export growth was slowing with onset of recession elsewhere. German re-unification - October 3rd 1990.

Employment - unemployment became the issue again when after 44 months of successive falls unemployment started to rise again in April 1990 to 1,606,600. Pace of increase quickened from there on. But unemployment still lower than many of competitors (France 8.9%, Italy 9.6%); couldn't match performance of Germany Japan and US though (same old story?).

Key facts on 1991

1991 - Still recession. Despite continuous promises from politicians - no recovery in sight. Growth for the year -2% (that's a minus, not a dash!). December 1991 - Maastricht treaty signed, promising-

December '91 - BT 11 share offer - around 23% more of BT sold raising £5.35bn.. Interest rates progressively headed down from 14% in January to 10.5% in September. Sterling fluctuated over the year with a bit of a dive in late November to the ERM lower limits, but ended the year at $1.83.

Norman Lamont's first Budget - not desperately exciting, but if you stayed awake to the end you would have heard - increase in VAT to 17.5%, increased relief for many poll tax payers and the usual increases on booze and fags! As a result of recession (mainly) the PSBR was on its way up. £10.5bn for 1991/2.

Unemployment heading up as well, for the same reason - 2.6m out of work by the end of 1991, but inflation is coming down - 4.6% for the year, so perhaps the recession had a positive effect!

Growth in Europe was slowing rapidly, though UK still beat them all (in the wrong direction). Gradual shift away from Thatcherism, with less emphasis on public spending cuts and the first stages in the abandonment of the Poll Tax.

Heading towards 1992 'Single Market' with 'harmonisation' of banking and financial services, tax systems and various products and services. Autumn statement prepared ground for an election with spending increases on health, public transport and education.

Key facts on 1992

1992 - Still recession - still various protestations of recovery from politicians! GDP declined by 1 %. Combined effect of the recession raised unemployment to 2.87m - more than 50% of them out of work for more than 6 months, and a third for more than a year. Businesses collapsed at a rate of about 1,200 per week.

But inflation fell to 3% - helped by interest rate cuts. House prices continue to fall, and `negative equity' to rise.

Balance of payments deteriorated slightly to a deficit on current account of £8.6bn, with a 9% increase in imports compared to 4% growth in exports - unprecedented in a recession of this depth.

Norman Lamont's second Budget - almost as exciting as the first. Modest cuts in direct taxation, almost matched by increases in indirect taxes. Overall impact of budget injected about £2bn into theeconomy.

Election year - won surprisingly (?) by Tories. PSBR rising rapidly as recession continues and fuelled by pre-election spending increases - £38bn for 1992.

Interest rates cut further to 7% by end of the year, but partly thanks to UK's departure from the ERM - "Black Wednesday" 16th September 1992. Government raised interest rates to 15% at one stage of Black Wednesday to try to defend the £. Concerns about the UK economy and the French referendum on Maastricht send pound down to its bottom limit. Fears that sterling would be devalued fuelled significant selling of the £ and buying of the Deutschmark. As a result of departure from ERM, interest rates are cut significantly.

Key facts on 1993

1993 - Recovery - GDP growth at 1.75% for the year. Investment still very low at 15.2% of GDP (public and private investment).

Earnings growth well down, but unemployment peaked at over 3m in January, though fell to 2.81m by end of the year. Inflation fell to a 30 year low of 1.2% - one of lowest rates in Europe (only Denmark and Irish Republic lower).

Balance of Payments switches to a new method of calculation. Single market means that data can now longer be measured at border, and so has to be done from VAT information. This means information will only be available at 6 month intervals. Deficit on current account rises to around £12bn, but export growth outpaces import growth.

PSBR - £50bn - help! Spending increases of £30.7bn and tax falls of £20.2bn to blame. Much of it recession, but by no means all.

Two Budgets in 1993 - one in March - Norman Lamont, the second in December - Kenneth Clarke. Norman put VAT on fuel and power at 8% initially in April 1994, and 17.5% from April '95. Tax increases were staggered -

All designed to reassure markets, but not make the recovery falter. Outlook for PSBR looked even worse in December 1993, so Kenneth topped even these tax increases making them the largest ever peacetime tax increases - equivalent to 7p on income tax. Much of increase was by reducing tax allowances and reducing the rate of 'mortgage tax relief'. Base rates were at 5.5% at the end of the year.

Problems for the ERM worsened with Irish Punt, Spanish Peseta and thePortugese Escudo all devalued. On 2nd August European Finance Ministers bowed to the heavy selling pressure and widened the ERM bands to 15% for all currencies. The Uruguay round of GATT negotiations was finally completed on 15th December 1993 after various bits of brinksmanship, and heavy negotiation between the USA and France. FTSE index breaks 3000 for the first time in August and goes on to end year at 3400.

Key facts on 1994

1994 - Recovery, but still a lack of a real `feel-good' factor. Growth is healthy at 4%, and the output gap is closing considerably from the recession of the early `90's. However, investment remains stubbornly low, particularly for this stage of the cycle - only 15% of GDP (peaked in '89 at 20% of GDP).

Unemployment falling well to under 2.5m. OECD produced a major report analysing worldwide unemployment.

Balance of payments deficit shrinking fast at only ½% of GDP (£4bn), thanks to strong export growth and a growing oil surplus. Could also be J-curve effect from the 1992 depreciation of £?? 1994 World Competitiveness League report showed the UK in 14^th position (an improvement from 19^th the previous year).

Various reports (Joseph Rowntree Foundation and the Institute for Fiscal Studies) showed the widening income distribution in the `80' and `90's.

PSBR falling slowly, but still around £40bn -nearly 7% of GDP. Budget consolidated the 1993 changes, but a backbench rebellion prevented the increase in VAT on fuel being increased right up to 17½%. Petrol, alcohol and tobacco bore the brunt of the increases instead.

The Royal Commission on Environmental Pollution report on transport painted an alarming picture of rapidly increasing car use, worsening congestion and deteriorating air quality.

Key facts on 1995

1995 - GDP growth 2½%, slight slowdown from 1994. Service sector growing well, but construction and manufacturing growth very hesitant. Some slight prospects of housing market recovery at the start of the year, but not a lot!! By the end of the year average prices had fallen very slightly. Still significant levels of `negative equity'.

Retail sales still flat, with `feel-good factor' still eluding UK consumers, but consumer credit starting to grow.

Inflation staying low at just over 3%, but has picked up slightly since '94. However, earnings growth stayed low at just over 4%.

PSBR falling but still running at nearly 4½% of GDP. Tax rises in previous budgets beginning to yield higher tax revenues, but still nowhere near the Maastricht 3% criteria.

Key facts on 1996

1996 - Growth remained at 2½% for the year, but stronger growth in services (4%) and very slight growth in construction. House prices grew at 5% for the year, helping to reduce negative equity and holding out hopes for further improvements in the construction industry.

Consumer confidence begins to return with stronger growth in retail sales. Consumer credit growing fats helped by reductions in the interest rate during 1996, though interest rates nudged up again towards the end of the year.

Inflation still just above target (target 2½%) at 2.8% in the middle of the year. Increased inflationary pressures nudged it upwards in the second half of the year, but earnings growth still low.

Balance of payments improving considerably with a very small deficit, due to strong growth in exports and particularly car sales. European football championship helped boost invisible earnings from tourism.

PSBR continues its downward trend standing at just over 3% of GDP for '96 (down from a peak of 7% in 1993). Budget was cautious:

Motorway congestion levels rose 5.3% and overall traffic up 16.4%. "In a typical day in November, the M25 caused some 518,000 motorists to waste the equivalent of 29 years in time."

Key facts on 1997

1997 - Unemployment fell throughout the year thanks to stronger GDP growth of 3.1%, and ended up at 1.4m (approximately 5% of the workforce). Welfare to work programme introduced for LT unemployed in June 1997. Unemployment figures among the lowest in the EU.

Inflation rose during year to a peak of 3.7% in October, but then began to fall slightly. Happy 50^th Birthday Retail Price Index - started in 1947. In 1997 it takes the equivalent of £2,150 to buy what could have been bought for £100 in 1947.

May 1^st - Election victory for Labour. New PM is Tony Blair, new Chancellor of the Exchequer - Gordon Brown. Overall majority of 179 seats in the House of Commons.

Bank of England given operational independence in the first week of the new government and the Bank of England `Monetary Policy Committee (MPC)' set up with 5 members from the Bank of England (the Governor, 2 deputies and 2 others), and also 5 external members:

New MPC kept raising interest rates each month to 7¼% by the end of the year (a 5 year high).

PSBR kept falling sharply down to £1.1bn for 1997 - a dramatic fall from £22.7bn the previous year.

Minimum wage bill went to Parliament on Nov.27^th - requires Low Pay Commission to report to PM in 1998 with a recommendation on the level of the National Minimum Wage. Will come into effect April 1^st 1999.

October '97 - worldwide stock markets crash; partly caused by problems in Asia. However, markets recovered by December, so crash was short-lived. Asia though didn't recover so quickly!! New Stock Exchange trading system introduced.

Merger activity increased sharply with quite a bit of acquisition overseas thanks to the strong £. Biggest deal was the merger of Guinness and Grand Metropolitan to form the drinks giant "Diageo". Government also banned electrical manufacturers from recommending retail prices on their goods.

Sept.'97 - Royal Commission on Environmental Pollution demanded a curb on pollution and congestion from road transport. They put total cost (time lost, accidents, illness etc.) at between £27.4bn and £51.4bn per annum.

EU publishes Agenda 2000 proposals for enlargement of the EU. Preliminary negotiations to begin in early 1998 with the Czech Republic, Estonia, Poland, Slovenia, Hungary and Cyprus.

Balance of payments recorded a current account surplus (first for 12 years) of £4.5bn. Largely helped by strong invisibles balance. However, strong £ may cause export problems in the future (J-curve effect)??

Key facts on 1998

1998 - Unemployment continued to fall slowly, down to 1.3million. New Deal Programme to reduce long-term unemployment among young is launched in January in selected areas and nationwide in April. Government changed method of calculation of unemployment figures to the `Labour Force Survey' method in February. The LFS uses the International Labour Definition of unemployment: "those without a job who have looked for work in the last 4 weeks, and could start work in the next 2 weeks."

Commercial Union and General Accident merged to form CGU in a £14bn deal, but Margaret Beckett (Trade & Industry Secretary) didn't allow merger of Bass and Carlsberg to go ahead. Somerfield and Kwik-Save merged in an attempt to stay competitive against bigger retailers.

Inflation - upward pressure continues, but interest rate increases from '97 take effect and inflationary pressures ease through the year. Inflation 3.4% for '98.

Balance of payments current account stays in surplus, but surplus falls to £1.5bn. Visible trade worsened sharply as strong £ takes effect on exports, but invisibles stayed strong.

Competition in electricity industry begins in Sept. 98 (delayed from April by IT problems). New firms are now allowed to compete to sell electricity in selected areas. Full competition in the whole of the UK should happen by June '99.

A report on BSE from DTZ Pieda Consulting (commissioned by the government) estimates the cost of the BSE crisis to the UK economy at between £740m and £980m in its first year.

Public finances continue healthy with a small Public Sector Net Cash Requirement (PSNCR) - the new name for the PSBR. PSBR R.I.P.

Growth still healthy, but unsteady by the end of the year - annual figure 2.1%. Growth helped marginally by MPC starting to lower interest rates towards the end of the year.

Minimum wage recommendations of the Low Pay Commission published in May. £3.60 per hour with a reduced rate of £3.20 per hour for 18-20 year olds and no minimum below 18.

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