UK Monetary Policy from Devaluation to Thatcher, 1967–82

Abstract

UK Monetary Policy from Devaluation to Thatcher, 1967-1982 charts the course of monetary policy in the UK from the 1960s to the early 1980s. It shows how events such as the 1967 sterling devaluation, the collapse of Bretton Woods, the stagflation of the 1970s and the International Monetary Fund loan of 1976 all shaped policy. It challenges the existing historiography by showing the Bank of England and the UK Treasury experimenting with money supply 'targets' nearly a decade before the Thatcher government placed monetarism at the heart of economic policy. By misreading the monetary history of the 1970s, the Thatcher government subjected the UK economy to a recession of unnecessary depth and severity that required the monetary policy U-turn of the 1981 budget, the most controversial in post-war British history. Fiscal policy was tightened ₆ to the bewilderment of much of the economics profession; monetary policy was loosened -- to the relief of British business. This rebalancing allowed personal consumption, through increased household debt, to become the engine of growth in the 1980s. This failure to heed the lessons of 1970s monetary policy, and the subsequent increase in personal debt, has had profound long-term consequences for the shape of the British economy. From devaluation to competition and credit control, 1967-71 -- Competition and credit control, 1971-73 -- The PSBR takes over, 1974-76 -- Too many targets, 1977-79 -- The lady is for turning.