The hubristic notion that inflation was dead and buried – fostered by the effective price stability which had prevailed since the adoption of inflation targeting following the UK’s ignominious forced exit (aka “Black Wednesday”) from the ERM in September 1992 – was dealt a fatal blow by the post-pandemic surge in prices. Indeed, the UK’s inflation rate soared into double-digit territory in 2022 – a level unseen since the early 1980s. Importantly, though, inflation has since moved towards the 2% target the Bank of England is mandated to achieve. Thankfully, no wage-price spiral developed, despite a tight labour market. And inflationary expectations – whether measured by household surveys or the behaviour of the gilt-edged market – remained “anchored”  at a relatively low level.

During the 1970s and early 1980s inflation had behaved very differently. Fuelled by an overly expansionary fiscal and monetary policy stance and by a global boom which produced a seismic rise in commodity prices inflation had surged in the first part of the decade, rising to over 25% in 1975. And though inflation subsequently subsided, it never dropped below 7% during the second half of the decade before surging to reach a double-digit pace once more in the 1979-82 period.

Unfortunately, too, such a robust pace of inflation coincided with a large rise in unemployment – a state of affairs characterised as “stagflation”. Indeed, the UK’s “misery index” – the sum of the inflation and unemployment rate – reached an all-time high in 1975.

The efforts of the incumbent Labour government to reduce inflation in the late 1970s relied primarily upon incomes policy, a stratagem which in turn depended upon trades union cooperation. The latter, however, hardly proved durable and morphed into the infamous “Winter of Discontent” of 1978/79. And this sorry state of affairs played no inconsiderable part in generating Margaret Thatcher’s resounding electoral victory of May 1979.

Thatcher’s overriding objective in gaining power was to quash the high inflation which characterised the 1970s – a phenomenon she regarded as both economically disruptive and fundamentally immoral. And the means she chose to achieve this were a combination of fiscal restraint and the adoption of “monetarism”.

There is a well-entrenched tendency to regard Thatcher’s economic policy as both misguided and unnecessarily brutal. After all, unemployment surged in the early 1980s as the economy tipped into severe recession and didn’t stop rising until the middle of the decade. Furthermore, Inflation initially surged further in her watch, fuelled in part by the renewed upward surge in oil prices which followed the Iranian Revolution but also by the VAT hike (taking it from 8% to 15%) in her government’s first budget. In addition, the money supply target which constituted the key component of the fight against inflation was repeatedly overshot, while the fiscal deficit soared: both developments which undermined the credibility of the much-vaunted Medium Term Financial Strategy. When, moreover, the fiscal stance was dramatically tightened in the March 1981 budget this not only caused massive tension within the Cabinet but also produced an explosion of fury on the part of the academic economic establishment epitomised by the letter to The Times newspaper signed by 364 economists.

Even so, the economy had begun what would prove to be a sustained recovery by mid-1981 while inflation fell sharply, dropping below 10% in 1982 and 5% the following year. And Margaret Thatcher went on to secure a vastly increased majority in the June 1983 general election. The UK’s successful prosecution of the Falklands War undoubtedly contributed the first of her two “landslide” electoral victories, as did the Labour Party’s “longest suicide note in history” election manifesto. This said, much of the electorate clearly believed that the economy was once more on the right track, following the vicissitudes suffered in the 1970s.

The economic policy pursued during the Thatcher government’s first term of office is the primary focus of Tim Lankester’s “Inside Thatcher’s Monetarism Experiment”. Lankester, who served as Thatcher’s private secretary from her accession to 10 Downing Street to the autumn of 1981, is uniquely well-equipped to write about this key episode in UK economic history. In his capacity as prime ministerial aide, he occupied a ringside seat par excellence and was privy to the government’s innermost deliberations in the sphere of economic policy at this crucial juncture. Thus far we have had to rely upon the memoirs of leading politicians for key insights into what really went on behind the scenes. Consequently, Lankester’s “inside track” experience makes his eye-witness account especially enthralling.

Political memoirs are notoriously tendentious, characterised by self-justification and the derogation of erstwhile opponents. Lankester also has axes to grind in his account, despite his role having been the “neutral” one of facilitating the creation and implementation of government policy. And, certainly, he makes no bones about his scepticism about the monetarist creed per se (adopted, reportedly, in an extraordinarily simpliste form by the prime minister). He also repeatedly confesses to having become increasingly uneasy about the consequences (particularly that of unemployment) of what he regarded as unnecessarily tight economic policy which resulted from the single-minded pursuit of monetary targets. Even do, he doesn’t deny the need for a reasonably harsh degree of policy restrictiveness to curb inflationary pressures. He does, moreover, cite the similarly painful US fight against inflation conducted by Fed chair Volcker over the same period which produced far less chagrin and criticism.  Overall, however, Lankester – a self-described “disbelieving monetarist” – gives the impression of being seriously discomfited by having been associated with what journalist Bill Keegan pejoratively described in 1984 as “Mrs Thatcher’s Economic Experiment”.

This said, Lankester takes us on a fascinating journey, exploring how the “Keynesian” economic ascendancy in economic thinking which dominated the post-WW2 period was progressively undermined by the advent of “stagflation” of the 1970s and the rise of monetarist beliefs among an influential clutch of economists inhabiting academia, think tanks and City stockbroking firms. In this latter connection, his description of the various monetary camps and their (frequently vituperative) disputes (most notably over which money measure was best suited for targeting) is especially insightful. His discussion, moreover, of how the pursuit of monetary targets (first elevated in importance by the Labour government as part of the quid pro quo for the IMF support package of 1976) evolved as a key part of Thatcher’s determined and unremitting anti-inflation “regime shift” is invaluable.

Overall, this is a book well worth reading, particularly by those who didn’t work as economic practitioners throughout this extraordinarily tumultuous (and intellectually disputatious) period of UK economic policy making and debate. With inflationary expectations running high and anti-inflation policy lacking credibility when Thatcher first took office inflation in the early 1980s proved very considerably more difficult to subdue than has been the case recently.