INFLATION, EXPECTATIONS, AND THE POLITICAL ECONOMY OF CONSERVATIVE BRITAIN, 1951–1964

Abstract

Analysis of policy after 1945 has been profoundly shaped by the idea of a post-war settlement, which is increasingly viewed as inherently inflationary. For much of the period 1951–64, British economic policy was centrally focused on reducing inflation. The extension of sterling's convertibility in the mid-1950s forced British policy-makers to be sensitive to overseas perceptions of British policy and performance. At the beginning of the Conservative government's period in office, monetary policy was believed to be the most effective instrument to control inflation, but its limitations slowly became apparent and created enormous tension between the Treasury and Bank of England. In the literature stimulated by the Phillips curve, the formation of price expectations is the central element in inflationary dynamics, and it is argued that after 1955 Conservative policy was driven by the need to find alternatives to monetary policy to prevent and then limit inflationary expectations. A number of these initiatives – a steep rise in unemployment and confrontation in pay bargaining – sit uncomfortably with the idea of the post-war settlement and an alternative perspective on the Conservative years, emphasizing the Radcliffe committee and the investigations into incomes policy, is proposed.