How Britain Compared: a 4 minute module

France elected a government in 1981 on more spending and state ownership, the opposite of Thatcher's policy. Within two years it had reversed and was running her policy instead.

Twelve modules of this series have watched Britain from the inside. The last one steps outside.

Inflation fell across the whole rich world in the early 1980s. The American central bank raised its interest rates far above other countries'. Other countries had to raise their own interest rates, or watch their money leave for America. France ran the opposite experiment, elected in 1981 on more spending and state ownership, and reversed it within two years.

Britain's own difference had two parts. Inflation fell further than in most countries, and unemployment stayed above 10 per cent from 1982 to 1987. Three steps, and the series closes on the question the evidence leaves open: how much Britain chose, and how much would have happened anyway.

What this module covers

The world's inflation, and the American push behind it
France, 1981 to 1983: the opposite, tried and reversed
The British difference: prices down further, unemployment high for longer

Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.

Step 1 · 1979 to 1981

The whole world's interest rates

When prices stop rising everywhere at once, it is worth asking whether any one government did it.

The whole rich world's fell in the early 1980s, not in Britain alone.

The fall started in America. The Federal Reserve, America's , raised its to slow American spending. Other countries had to raise their own interest rates, or watch their money leave for America.

The rich world's economies were pulled into together in the early 1980s, and their price rises slowed together.

inflation: The rate at which prices in general are rising, measured over a year. It is not the level of prices but the speed they are climbing, so falling inflation still means things are getting dearer, only more slowly.
central bank: The bank a government sets up to issue its money and set the interest rate the rest of the banking system builds on. Its counterparties are banks and the state rather than the public, and how far it goes in spending for the state has varied a great deal by country and by period.
interest rate: The price of borrowing money, given as a percentage of the amount borrowed each year. The Bank of England sets one rate that acts as a floor under the rest, so when it moves, mortgages, loans and savings rates move with it.
recession: A period in which the economy shrinks rather than grows, usually counted as two or more three-month periods of falling output in a row. Firms sell less, so they employ fewer people, so households spend less again.

Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.

Britain's interest rate reached 17 per cent. How high did the American central bank push its interest rate in 1980 and 1981?

Give it in per cent.

For scale. Britain's own interest rate peaked at 17 per cent in 1979, below the American interest rate.

Step 2 · 1981 to 1983

The country that tried the opposite

France elected a government in 1981 that promised the opposite of Britain's policy of high interest rates and less government spending. It would spend more, take companies into state ownership, and protect jobs.

The promise was tested against the same world: high American interest rates, and price rises slowing everywhere.

The new government did spend more. Much of the money went on goods from abroad, so it left France. Because money was leaving, France's fell.

exchange rate: What one country's money is worth in another's. A stronger pound makes imports cheaper for people here and exports dearer for buyers abroad.

France set out in 1981 to spend more instead of cutting. How long did that policy last?

For scale. France reversed its policy within one elected term, under the same government that had promised the opposite.

Step 3 · 1982 to 1987

What was Britain's own difference

Britain fought rising prices the same way as the other rich countries: with high interest rates. The results were different in two ways: inflation fell further than in most countries, and stayed higher for longer.

The comparison is with the other rich economies, from 1979 to 1990, and not with Britain's own past.

British unemployment went above 10 per cent in 1982, on the government's official count.

Britain's prices slowed more than most, and its unemployment stayed above 10 per cent for years. The same method gave a different answer here.

unemployment: The number of people who want paid work and cannot find it, usually given as a share of all those working or looking for work. People who are not looking are not counted, so the figure understates how many are out of work.

Unemployment went above 10 per cent in 1982. When did it come back under?

For scale. By 1990 inflation was back near 10 per cent, close to its level when the decade began.

You have finished the series More series → Back to LearnEvery series on the site, and what each one covers

That was module 13 of 13, the last in Thatcher's Economic Policy

Your score

0 points

Your score will appear here.

←Previous module All 13 modules

What this module covered

America's interest rates

above 20% in 1980 and 1981

France's extra spending

1981 to 1983, then reversed

Britain's difference

inflation fell further than most; unemployment above 10% from 1982 to 1987

You met six terms in this module

, , , , ,

inflation: The rate at which prices in general are rising, measured over a year. It is not the level of prices but the speed they are climbing, so falling inflation still means things are getting dearer, only more slowly.
central bank: The bank a government sets up to issue its money and set the interest rate the rest of the banking system builds on. Its counterparties are banks and the state rather than the public, and how far it goes in spending for the state has varied a great deal by country and by period.
interest rate: The price of borrowing money, given as a percentage of the amount borrowed each year. The Bank of England sets one rate that acts as a floor under the rest, so when it moves, mortgages, loans and savings rates move with it.
recession: A period in which the economy shrinks rather than grows, usually counted as two or more three-month periods of falling output in a row. Firms sell less, so they employ fewer people, so households spend less again.
exchange rate: What one country's money is worth in another's. A stronger pound makes imports cheaper for people here and exports dearer for buyers abroad.
unemployment: The number of people who want paid work and cannot find it, usually given as a share of all those working or looking for work. People who are not looking are not counted, so the figure understates how many are out of work.

Price rises slowed everywhere at once, and Britain's price rises slowed more than most countries'. British unemployment stayed above 10 per cent for years.

The rest of the series

Thatcher's Economic PolicyAll 13 modules, in order.→

Take it further

📚The whole series: Thatcher's Economic Policy, from the inheritance to the verdict→ 🇬🇧United Kingdom: the numbers today→ 🎯Guess the Value, which trains you to estimate numbers like the ones these questions asked for→

Where every figure came from

[1] The whole rich world's inflation: National Institute Economic Review, labour productivity and comparative series for the OECD economies, 1979 to 1990. The comparative OECD series: inflation fell across the rich world between 1979 and 1986, with the United States pushing its interest rates above 20% in 1980 and 1981; French inflation and the franc under the 1981-83 experiment.
[2] The world's tightening, and France's reversal: Nicholas Crafts, The economic legacy of Mrs Thatcher, CEPR. The international context of the early-1980s fall in inflation, and the French experiment of 1981 to 1983: elected on more spending and state ownership, reversed within two years.
[3] British unemployment, month by month: ONS, unemployment rate, series MGSX. The unemployment rate stood above 10% from 1982 to 1987.
[4] Britain against its peers: Centre for Economic Performance, LSE, CP414, UK relative performance. The United Kingdom against comparable economies, 1979 to 1990: inflation fell further than in most, and unemployment stayed higher for longer.