Price pressures Inflation has claimed many political scalps
The task of containing living costs can be make or break for a government.
Margaret Thatcher’s reputation was boosted by her drive to restore price stability while her predecessor James Callaghan’s was destroyed on it.
Prime ministers have not had to worry about the rate of inflation in decades but living costs have raced up the political agenda once again.
While politicians had control of the monetary levers the last time inflation was as high as its current level of 9pc, these days policy is in the hands of an independent Bank of England.
Both Tory and Labour governments succumbed to inflation in the 1970s as the oil crises sent prices soaring.
The 1974 elections that ousted Conservative prime minister Ted Heath were held against the backdrop of stagflation caused by the surge in oil prices, with inflation hitting 25pc in 1975.
Heath and the subsequent Labour governments tried to cap wages to stop rising pay feeding back into prices but trade union resistance became a stumbling block in the plan.
Heath was forced to install a three-day week to conserve power after industrial action over the pay cap. Pay controls under Callaghan also culminated in the Winter of Discontent in 1978/79 when the economy was rocked by mass strike action.
Thatcher won the following election and set about stamping out high inflation with monetarist policies that hiked interest rates and clamped down on trade union power. It resulted in a recession, a major hit to manufacturing and a jump in unemployment but the UK economy was finally freed of its persistent inflation woes.
However, inflation was kick started towards the end of her premiership by the economic boom of the late 1980s, with the fallout rocking John Major’s government. The government joined the Exchange Rate Mechanism to help bring inflation under control but it struggled to keep the pound at the required level. It culminated in Black Wednesday and a severe blow to the Major government’s economic credibility. While the economy recovered, Tony Blair ousted Major in a landslide victory in 1997.
Thatcher emerged from her inflation battle with her reputation enhanced but high and persistent prices have helped to take down a long line of less successful prime ministers.
Tom Rees