Magazine article Management Today

Britain Tames the Bulls and Bears

Magazine article Management Today

Britain Tames the Bulls and Bears

Article excerpt

Monetary and fiscal policy have been conducted in a highly responsible way for some time. The UK has a stable economy. Can it last?

In its latest assessment, the Organisation for Economic Co-operation and Development gave it to us straight. Britain now had a 'less cyclothymic' economy, and that is a good thing.

Before you reach for your dictionary, let me say I did not know what it meant either. Cyclothymia, it seems, is 'a temperament inclined to alternation of high and low spirits'. The fact that we have become less cyclothymic means we are less subject to those wild economic mood-swings, one moment raging bulls, the next growling bears.

It means -- and I must remind Tony Blair and Gordon Brown that I hold the original copyright on this phrase -- no more boom and bust. An economy once noted for its volatility has become remarkably stable.

I thought it worth examining Britain's stability and trying to answer the question on everybody's lips: can it last?

First, some facts. The economy did not suddenly become stable on 1 May 1997. The most impressive piece of economic policymaking in Britain in modern times was in the autumn of 1992 when, out of the wreckage of the country's involuntary exit from the European exchange rate mechanism, a new policy framework was constructed.

Thus, the Bank of England was given an enhanced role, both of monitoring and forecasting inflation and of openly advising the chancellor on interest rate decisions. And, for the first time, inflation was explicitly targeted, rather than anything else.

Sadly for Norman Lamont, the then chancellor, the 'Norman and Eddie show' never really got going; Kenneth Clarke took over just as the new framework was bedding in, and we should take the period since then as our measure of the new stability.

Over that time, Britain has achieved the longest unbroken phase of economic growth since quarterly records began in the mid-1950s. This has averaged 2.8% and -- most impressive of all -- been higher than inflation, which has averaged 2.7%. Employment has grown to record levels, pushing unemployment below 4% on a claimant basis. After a disastrous start, the 1990s turned into a golden age, which, it appears, is continuing.

I have not mentioned Bank of England operational independence, Brown's boldest act. It would be churlish to deny that it has strengthened and given greater credibility to the Ken-and-Eddie framework. With politicians out of the way, people and businesses are entitled to believe that low (2.5%) inflation, with occasional hiccups, will stretch into the future. …

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