Towards a New Economy? Recent Inflation and Unemployment in the United Kingdom

Abstract

This is the last article in the series contributed to the Review from the CLARE Group of economists. Since the Group was formed in 1976, with the aim of counteracting the polarisation of opinion among economists at the time, over fifty articles have been published, initially in the Midland Bank Review. But members of the Group have lately come under increasing pressure of time from academic and other commitments, and it has reluctantly decided to dissolve itself. On doing so, it would like to record its warm thanks to the National Institute Economic Review for the hospitality of its pages since 1988. As for previous articles, drafts of this one have been discussed among members of the Group, but responsibility for the views expressed rests with the author alone.From 1993 to 2000 in the UK, there was a welcome twist to the relationship between unemployment and inflation, subverting received ideas about the ‘Phillips Curve’. This is best accounted for by the onset of a relatively moderate rate of growth of real wages, which also helped the monetary authorities to keep inflation close to the target set. Several causes can be suggested for this moderation, but the major issue now is the extent to which it can be reckoned on to continue. There are reasons for taking a cautious view of the prospects.