Although Britain achieved ultimate victory in the war, the economic costs were enormous. The net losses in British national wealth amounted to 18.6% (£4.595 billion) of the prewar wealth (£24.68 billion), at 1938 prices. Six years of prolonged warfare and heavy losses of merchant shipping meant that Britain had lost two-thirds of her pre-war export trade by 1945. The loss of her export markets also caused a serious shortage of US dollars, which were crucial to servicing Britain's war debt and maintaining imports from the United States. Most of Britain's gold and currency reserves were depleted and the Government had been forced to sell off the bulk of British overseas assets to fund the war effort. The US/UK trade imbalance was perilously high, forcing the extension of rationing to lessen the imbalance and preserve precious
United States dollars for the servicing of loan repayments. Successive governments squandered billions of
Marshall Plan Aid to support British world power pretensions, and so jeopardised the economic future of Britain. The
Labour government chose not to use the $2.7 billion (Germany received $1.7b) in aid for industrial modernisation like
West Germany had. Germany rebuilt factories like the
Volkswagen plant in
Wolfsburg. Germany, France and Italy were fully re-engineered with all
electric rail lines. In Britain,
steam engines,
mechanical semaphore signalling and old track would remain into the 1960s. In addition, the road and telecommunications network in Britain remained equally inadequate, ill-maintained and out-of-date. By 1950–1 the UK still spent 7.7% of GNP on defence while Germany and Japan spent nothing. In the
1945 general election, just after the end of the war in Europe, the
Labour Party led by
Clement Attlee was elected with a landslide majority (its first ever outright majority), introducing sweeping reforms of the British economy. Taxes were increased, industries were nationalised, and the
welfare state with the
National Health Service, pensions, and social security was expanded. Most rations were lifted by 1950, with a few of them remaining until 1954. The next 15 years saw some of the most rapid growth Britain had ever experienced, recovering from the devastation of the Second World War and then expanding rapidly past the previous size of the economy. The economy went from strength to strength particularly after the Conservatives returned to government in 1951, still led by wartime leader
Sir Winston Churchill until he retired to make way for
Anthony Eden just before his party's
re-election in 1955. However, the Suez crisis of 1956 weakened the government's reputation and Britain's global standing, and prompted Eden to resign in early 1957 to be replaced by
Harold Macmillan. By 1959, tax cuts had helped boost living standards and allow for a strong economy and low unemployment, with October 1959 seeing the Tories win their third consecutive general election with a greatly increased majority, which sparked public and media doubt regarding Labour's chances of future election success. Labour leader
Hugh Gaitskell then drew a new economic plan for the party, heavily based on the success of the centralised industries of France and West Germany, by the 1960s the latter's economy surpassing the UK for the first time since 1915 as Europe's largest economy.
Harold Wilson and
Anthony Wedgwood Benn further developed the idea, becoming the backbone of the party's manifesto for the 1964 election. Britain's economy remained strong with low unemployment into the 1960s, but towards the end of the decade this growth began to slow and unemployment was rising again.
Harold Wilson, the Labour leader who had ended 13 years of Conservative rule with a narrow victory in
1964 before increasing his majority in
1966, was surprisingly voted out of power in
1970. The
new Conservative government was led by
Edward Heath. During the 1970s Britain suffered a long running period of relative economic malaise, dogged by rising unemployment, frequent strikes and severe inflation, with neither the
Conservative government of
1970 –
1974 (led by
Edward Heath) nor the
Labour government which succeeded it (led by
Harold Wilson and from 1976
James Callaghan) being able to halt the country's economic decline. Inflation exceeded 20% twice during the 1970s and was rarely below 10%. Unemployment exceeded 1 million by 1972 and had risen even higher by the time the end of the decade was in sight, passing the 1.5 million mark in 1978. The winter of 1978/79 brought a series of
public sector strikes known as the
Winter of Discontent, leading to the collapse of Callaghan's Labour government in March 1979 (two years after it had lost the three-seat parliamentary majority won in October 1974). Anticipating the end of the conflict, the United States had negotiated throughout the war to liberalise post-war trade and the international flow of capital in order to break into markets which had previously been closed to it, including the British Empire's
Pound Sterling bloc. This was to be realised through the
Atlantic Charter of 1941, through the establishment of the
Bretton Woods system in 1944, and through the new economic power that the US was able to exert due to the weakened British economy. , during the record-cold winter of 1946–47, which caused major fuel shortages and damaged Britain's fragile post-war economic recovery Immediately after the war in the Pacific ended, the U.S. halted
Lend-Lease, but did give the UK a
long-term low-interest loan of US$4.33bn. The loan was for US$3.75 billion (equivalent to $58.59 billion in 2023) at a low 2% interest rate; Canada loaned an additional US$1.9 billion (equivalent to $29.69 billion in 2023). The winter of
1946–1947 proved to be very harsh, with curtailed production and shortages of coal, which again affected the economy so that by August 1947, when convertibility was due to begin, the economy was not as strong as it needed to be. When the Labour Government enacted convertibility, there was a run on Sterling, as pounds were traded for dollars. This damaged the British economy and within weeks convertibility was abandoned. By 1949, the British pound was seen to be overvalued; it was devalued on 18 September 1949 from £1 at $4.03 to $2.80. The US dollar had become the world's premier currency. The major economic priority of post-war Britain was to raise exports to fund the UK's dollar deficit. This required the extension of rationing, as British goods and produce were prioritised for export markets. Unlike Continental European countries, where rationing was abandoned within a few years of the wars' end, Britain actually tightened rationing restrictions and didn't fully abandon them until 1954. The U.S. began
Marshall Plan grants (mostly grants with a few loans) that pumped $3.3 billion into the economy and encouraged businessmen to modernize their approach to management. Marshall Aid, however, failed to have the desired effect of modernising industry and stimulating the economy, because 97% of the funds were used to service British debt repayments. This left the UK at a comparative disadvantage to rivals like
France and
West Germany, who were able to invest the money directly into industry and infrastructure, creating more competitive, efficient economies in the long-term.
Nationalisation The Labour Governments of 1945–1951 enacted a political programme rooted in
collectivism that included the
nationalisation of industries and state direction of the economy. Both wars had demonstrated the possible benefits of greater state involvement. This underlined the future direction of the post-war economy, and was also supported in the main by the Conservatives. However, the initial hopes for nationalisation were not fulfilled and more nuanced understandings of economic management emerged, such as state direction, rather than state ownership. With the extensive nationalisation programme achieved, Keynesian management of the UK economy was adopted.
Depressed regions With the postwar Labour Governments, the first comprehensive attempts at economic planning were made with initiatives intended to overhaul chronically depressed regions of the UK. The
Distribution of Industry Act 1945 designated "development areas" in northeast England, Scotland, and Wales according to the findings of the Barlow Report of 1940, which had recommended a complete economic overhaul of the troubled areas it pinpointed. Between 1945 and 1950, the British government pumped some £300 million into the building of 481 new factories in these regions, to be leased to private industry. In addition there were 505 privately owned factories built in the troubled regions on the active encouragement of the government in London. This activity created an estimated 200,000 new jobs.
Coal The policy of nationalising the coal mines had been accepted in principle by owners and miners alike before the elections of 1945. The owners were paid £165,000,000. The government set up the
National Coal Board to manage the coal mines; and it loaned it £150,000,000 to modernise the system. The general condition of the coal industry had been unsatisfactory for many years, with poor productivity. In 1945, there were 28% more workers in the coal mines than in 1890, but the annual output was only 8% greater. Young people avoided the pits; between 1931 and 1945 the percentage of miners more than 40 years old rose from 35% to 43%, and 24,000 over 65 years old. The number of surface workers decreased between 1938 and 1945 by only 3,200, but in that same time the number of underground workers declined by 69,600, substantially altering the balance of labour in the mines. That accidents, breakdowns, and repairs in the mines were nearly twice as costly in terms of production in 1945 as they had been in 1939 was probably a by-product of the war. Output in 1946 averaged 3,300,000 tons weekly. By summer 1946 it was clear that the country was facing a coal shortage for the upcoming winter with stock piles of 5 million tons too low. Nationalisation exposed both a lack of preparation for public ownership and a failure to stabilise the industry in advance of the change. Also lacking were any significant incentives to maintain or increase coal production to meet demand.
Prosperity of the 1950s The 1950s and 1960s were prosperous times and saw continued modernisation of the economy. Representative was the construction of the first
motorways, for example. Britain maintained and increased its financial role in the world economy, and used the English language to promote its educational system to students from around the globe. Unemployment was relatively low during this period, and the standard of living continued to rise, with more new private and council housing developments and the number of slum properties diminishing. Churchill and the Conservatives were back in power following the 1951 elections, but they largely continued the welfare state policies as set out by the Labour Party in the late 1940s. holiday camp in
Pwllheli, Wales in the 1950s. Holiday camps symbolised the newfound prosperity and leisure of postwar Britain. During the "golden age" of the 1950s and 1960s, unemployment in Britain averaged only 2%. As prosperity returned, Brits became more family centred. Leisure activities became more accessible to more people after the war.
Holiday camps, which had first opened in the 1930s, became popular holiday destinations in the 1950s – and people increasingly had the money to pursue their personal hobbies. The
BBC's early television service was given a major boost in 1952 with the coronation of
Elizabeth II, attracting a worldwide audience of twenty million, plus tens of millions more by radio, proving an impetus for middle-class people to buy televisions. In 1950, just 1% owned television sets; by 1965 25% did. As austerity receded after 1950 and consumer demand kept growing, the Labour Party hurt itself by shunning consumerism as the antithesis of the socialism it demanded. Small neighbourhood shops were increasingly replaced by
chain stores and
shopping centres, with their wide variety of goods, smart advertising, and frequent sales. Cars were becoming a significant part of British life, with city-centre congestion and
ribbon developments springing up along many of the major roads. These problems led to the idea of the
green belt to protect the countryside, which was at risk from development of new housing units. The post-World War II period witnessed a dramatic rise in the average standard of living, with a 40% rise in average real wages from 1950 to 1965. Workers in traditionally poorly paid semi-skilled and unskilled occupations saw a particularly marked improvement in their wages and living standards. In terms of consumption, there was more equality, especially as the landed gentry was hard pressed to pay its taxes and had to reduce its level of consumption. As a result of wage rises,
consumer spending also increased by about 20% during the same period, while economic growth remained at about 3%. In addition, the last food rations were ended in 1954 while hire-purchase controls were relaxed in the same year. As a result of these changes, large numbers of the working classes were able to participate in the consumer market for the first time. Entitlement to various fringe benefits was improved. In 1955, 96% of manual labourers were entitled to two weeks' holiday with pay, compared with 61% in 1951. By the end of the 1950s, Britain had become one of the world's most affluent countries, and by the early Sixties, most Britons enjoyed a level of prosperity that had previously been known only to a small minority of the population. For the young and unattached there was, for the first time in decades, spare cash for leisure, clothes, and luxuries. In 1959,
Queen magazine declared that "Britain has launched into an age of unparalleled lavish living." Average wages were high while jobs were plentiful, and people saw their personal prosperity climb even higher. Prime Minister
Harold Macmillan claimed that "the luxuries of the rich have become the necessities of the poor". As summed up by
R. J. Unstead, As noted by historian Martin Pugh: The number one selection for the housewife was a washing machine. Ownership jumped from 18 per cent in 1955 to 29 per cent in 1958, and 60 per cent in 1966. By 1963, 82% of all private households had a television, 72% a vacuum cleaner, and 30% a refrigerator. John Burnett notes that ownership had spread down the social scale so that the gap between consumption by professional and manual workers had considerably narrowed. The provision of household amenities steadily improved in the late decades of the century. From 1971 to 1983, households having the sole use of a fixed bath or shower rose from 88% to 97%, and those with an internal WC from 87% to 97%. In addition, the number of households with central heating almost doubled during that same period, from 34% to 64%. By 1983, 94% of all households had a refrigerator, 81% a colour television, 80% a washing machine, 57% a deep freezer, and 28% a tumble-drier.
Relative decline From a European perspective, however, Britain was not keeping pace. Between 1950 and 1970, it was overtaken by most of the countries of the European Common Market in terms of the number of telephones, refrigerators, television sets, cars, and washing machines per 100 of the population. Education provision expanded, but not as fast as in neighbouring European countries. By the early 1980s, some 80% to 90% of school leavers in France and West Germany received vocational training, compared with only 40% in the United Kingdom. By the mid-1980s, over 80% of pupils in the United States and West Germany and over 90% in Japan continued in education until the age of eighteen, compared with barely 33% of British pupils. In 1987, only 35% of 16- to 18-year-olds were in full-time education or training, compared with 80% in the United States, 77% in Japan, 69% in France, and 49% in Germany. Economic growth in Britain, though steady through the 1950s, was not nearly as fast as on the continent. The statistics should be interpreted with care: Britain was far ahead of some other European nations in terms of economic development and urbanisation. Countries like Italy, France and Spain, overwhelmingly agrarian in character at the end of the Second World War, were experiencing a process of rapid industrialisation and urbanisation that Britain had already passed through in the 19th century. This explanation is known as the "early start theory" among economists, and explains why European nations showed markedly stronger levels of absolute growth in industry compared to the UK, a country which was already transitioning into a post-industrial, service-based economy. There was also a systemic malaise in British industry, which was famously inefficient and opposed to innovations.
Tony Judt described the prevailing attitude of post-war industrialists: "British factory managers preferred to operate in a cycle of under-investment, limited research and development, low wages and a shrinking pool of clients, rather than risk a fresh start with new products in new markets." The overriding emphasis placed on exports by the British government, in its effort to repair the nation's dollar deficit, made things worse, because it encouraged manufacturers to place all investment in expanding output, at the expense of updating machinery, introducing new technologies, improving production methods, etc. This policy was sustainable in the short-term, because in the late 1940s and early 50s world trade boomed and Britain, with its large and relatively undamaged industrial base, was in a uniquely advantageous position to satisfy demand. In 1950, 25% of world exports were British-made, and the total volume of British manufactured goods was double that of France and Germany combined. However, by the late 1950s, the economies of West Germany, France, Japan, and Italy, had recovered from wartime infrastructure damage, replacing destroyed stock with state-of-the-art machinery and applying modern production methods in a process called "rejuvenation by defeat". British goods were also more expensive abroad because of Sterling's overvaluation, but inferior in quality compared to the products flooding the world market from the United States, Germany and Italy. Rapid decolonisation in the British Empire through the late 1950s and 1960s dealt a further blow to British industry. Britain had enjoyed a virtual monopoly of the consumer markets within the Empire, enforced by the closed Pound Sterling Bloc, but it could not compete once the territories gained independence and were free to negotiate their own trade agreements.
Suez Crisis Although the 1950s were overall a time of prosperity for Britain, the
Suez Crisis of November 1956 precipitated a financial crisis and a speculative run on Sterling which underlined the fragility of post-war British finances. The tripartite invasion of the
Suez Canal Zone by Britain, France and Israel in late October 1956, following Egypt's
nationalisation in July of the
Suez Canal Company (hitherto, a French company, albeit one with a majority share holding owned by the British government), was a disaster for British prestige and the economy. The United States and the United Nations came out firmly against the occupation, which caused a run on sterling as foreign governments withdrew their holdings and converted them into either the US dollar or gold. In the run up to the invasion £214 million was withdrawn by nervous investors and foreign governments. Britain's decision to freeze Egypt's holdings in response to the nationalisation inspired panic in other foreign governments who feared their assets might be frozen if they supported the Egyptian cause. With the invasion a further £279 million was withdrawn, leaving a scarce £1.965 billion left in sterling reserves. Since the Canal was closed to shipping, the UK was reliant on imports of American oil, and devaluing the pound would make oil more expensive and possibly trigger serious inflation. British withdrawal from the Canal Zone was completed by 22 December, and the pound returned to its pre-crisis parity with the dollar by January 1957, but not without very nearly losing its value as an international reserve currency.
1960–1979: the Sixties and Seventies Deindustrialisation The United Kingdom has experienced considerable deindustrialisation, especially in both heavy industry (such as mining and steel) and light manufacturing. New jobs have appeared with either low wages, or with high skill requirements that the laid-off workers lack. Meanwhile, the political reverberations have been growing. Jim Tomlinson agrees that deindustrialisation is a major phenomenon but denies that it represents a decline or failure. The UK's share of global manufacturing output had risen from 9.5% in 1830, to 22.9% in the 1870s. It fell to 13.6% by 1913, 10.7% by 1938, and 4.9% by 1973. Overseas competition, trade unionism, the welfare state, loss of the
British Empire, and lack of innovation have all been put forward as explanations for the industrial decline. It reached a crisis point in the 1970s, with a worldwide energy crisis, high inflation, and a dramatic influx of low-cost manufactured goods from Asia. Coal mining quickly
collapsed and practically disappeared by the 21st century. Railways were decrepit, more textile mills closed than opened, steel employment fell sharply, and the car-making industry suffered. The government decided in 1964 that underdeveloped or industrially obsolete areas with high unemployment would benefit from economic subsidy, and at least three aluminum smelters enjoyed subsidy "totaling some $144‐million and representing a 40 per cent investment grant for plant and machinery. The two largest smelters were fostered by the decision to authorise cheap bulk sales of electric power based on anticipated breakthroughs in
nuclear power costs. High power costs in Britain previously militated against the electrolytic aluminum industry, which is an enormous power user... Another purpose of encouraging the development of domestic primary aluminum industry was to reduce imports. Previously, the only primary production in Britain was at
British Aluminium's
two small Scottish smelters, which had a total output of 39,000 tons" in 1970. Popular responses varied a great deal; Tim Strangleman
et al. found a range of responses from the affected workers: for example, some invoked a glorious industrial past to cope with their new-found personal economic insecurity, while others looked to the European Union for help. It has been argued that these reverberations contributed towards the popular vote in favour of
Brexit in 2016. Economists developed two alternative interpretations to explain de-industrialisation in Britain. The first was developed by Oxford economists Robert Bacon and Walter Eltis. They argue that the public sector expansion deprived the private sector of sufficient labour and capital. In a word, the government "crowded out" the private sector. A variation of this theory emphasises the increases in taxation cut the funds needed for wages and profits. Union demands for higher wage rates resulted in lower profitability in the private sector, and a fall in investment. However, many economists counter that public expenditures have lowered unemployment levels, not increased them. The second explanation is the New Cambridge model associated with
Wynne Godley and Francis Cripps. It stresses the long-term decline and competitiveness of British industry. During the 1970s especially, the manufacturing sector steadily lost its share of both home and international markets. The historic substantial surplus of exports over Imports slipped into an even balance. That balance is maintained by North Sea oil primarily, and to a lesser extent from some efficiency improvement in agriculture and service sectors. The New Cambridge model posits several different causes for the decline in competitiveness. Down to the 1970s, the model stresses bad delivery times, poor design of products, and general low-quality. The implication is that although research levels are high in Britain, industry has been laggard in implementing innovation. The model after 1979 points to the appreciation of sterling against other currencies, so that British products are more expensive. In terms of policy, the New Cambridge model recommends general import controls, or else unemployment will continue to mount. The model indicates that deindustrialisation is a serious problem which threatens the nation's ability to maintain balance of payments equilibrium in the long run. The situation after North Sea oil runs out appears troublesome. De-industrialisation imposes that serious social consequences. Workers skilled in the manufacturing sector are no longer needed, and are shuffled off to lower paying, less technologically valuable jobs. Computerisation and globalisation are compounding that problem. Nicholas Crafts attributes the relatively poor productivity growth of the British economy during the postwar period to a mixture of failure to invest in equipment and skills, poor management, insufficient competition, dysfunctional management-labour relations and poor economic policy. Deindustrialisation meant the closure of many enterprises in mining, heavy industry and manufacturing, with the resulting loss of high paid working-class jobs. A certain amount of turnover had always taken place, with older businesses shutting down and new ones opening up. However, the post-1973 scene was different, with a worldwide energy crisis, and an influx of low-cost manufactured goods from Asia. Coal mining slowly collapsed, and finally disappeared in the 21st century. The railways were decrepit, more textile mills closed than opened, steel employment fell sharply, and the automobile industry practically disappeared, apart from some luxury production. There was a range of popular response. By the 21st century, grievances accumulated enough to have a political impact. The political reverberations came to a head in the unexpected popular vote in favour of Brexit in 2016.
Stagnation While industry performance had remained strong in nearly 20 years following the end of the war, and extensive house building and construction of new commercial developments and public buildings also kept unemployment low throughout this time. As negative factors coalesced during the 1960s, the slogan used by Prime Minister
Harold Macmillan "(most of) our people have never had it so good" seemed increasingly hollow. The Conservative Government presided over a 'stop-go' economy as it tried to prevent inflation spiralling out of control without snuffing out economic growth. Growth continued to be disappointing, at about only half the rate Germany or France achieved in the same period. In comparing economic prosperity (using gross national product per person), there was a common perception of continued relative economic decline; Britain slipped from seventh place in the world ranks of income per capita in 1950, to 12th in 1965, and to 20th in 1975. Labour politician
Richard Crossman, after visiting prosperous Canada, returned to England with a "sense of restriction, yes, even of decline, the old country always teetering on the edge of a crisis, trying to keep up appearances, with no confident vision of the future." An additional factor, perhaps a feature of the social traditionalism, was the alleged disappointing performance of British management.
Labour responds The result was a major political crisis, and a
Winter of Discontent in the winter of 1978–1979, during which there were widespread strikes by public sector unions that seriously inconvenienced and angered the public. Historians Alan Sked and Chris Cook have summarised the general consensus of historians regarding Labour in power in the 1970s: The
Labour Party under
Harold Wilson from 1964 to 1970 was unable to provide a solution either, and eventually devalued the pound from US$2.80 to US$2.40 took effect on 18 November 1967. Economist
Nicholas Crafts attributes Britain's relatively low growth in this period to a combination of a lack of competition in some sectors of the economy, especially in the nationalised industries; poor
industrial relations; and insufficient
vocational training. He writes that this was a period of
government failure caused by poor understanding of economic theory, short-termism, and a failure to confront interest groups. However, with the continuing relative decline of Britain's economy during the 1960s, management-labour relations deteriorated towards the end of the Wilson government and this worker discontent led to a dramatic breakdown of the industrial environment under the
Conservative Government of Edward Heath (1970–1974). In the early 1970s, the British economy suffered even more as strike action by trade unions, especially successful action by the miners' union, plus the effects of the
1973 oil crisis, led to a
three-day week in 1973–74. However, despite a brief period of calm negotiated by the recently re-elected Labour Government of 1974 known as the
Social Contract, a breakdown with the unions occurred again in 1978, leading to the
Winter of Discontent, and eventually leading to the end of the Labour Government, then being led by
James Callaghan, who had succeeded Wilson in 1976. Unemployment had also risen during this difficult period for the British economy; unemployment reached 1.5 million in 1978 – nearly triple the figure of a decade earlier, with the national rate exceeding 5% for the first time in the postwar era. It had not fallen below 1 million since 1975, and has remained above this level ever since, rarely dropping below 1.5 million. Also in the 1970s, oil was found in the
North Sea, off the coast of Scotland, although its contribution to the UK economy was minimised by the need to pay for rising national debt and for welfare payments to the growing number of unemployed people.
1979–1990: the Thatcher era The election of
Margaret Thatcher in 1979 marked the end of the
post-war consensus and a new approach to economic policy, including
privatisation and
deregulation, reform of industrial relations, and tax changes.
Competition policy was emphasised instead of
industrial policy; consequent
deindustrialisation and
structural unemployment was more or less accepted. With the recession of 1980/81, unemployment passed 2 million in the autumn of 1980, 2.5 million the following spring. By January 1982, unemployment had reached 3 million for the first time since the early 1930s, though this time the figure accounted for a lesser percentage of the workforce than the early 1930s figures, now standing at around 12.5% rather than in excess of 20%. In areas hit particularly hard by the loss of industry, unemployment was much higher, coming close to 20% in
Northern Ireland and exceeding 15% in many parts of
Wales,
Scotland and northern England. The peak of unemployment actually came some two years after the recession ended and growth had been re-established, when in April 1984 unemployment stood at just under 3.3 million. According to
Eric Hobsbawm, Thatcher oversaw an "industrial holocaust", which saw Britain's industrial capacity decrease by fully one quarter during the years 1980–1984. Major state-controlled firms were privatised, including
British Aerospace (1981),
British Telecom (1984),
British Leyland (1984),
Rolls-Royce (1987), and
British Steel Corporation (1988). The electricity, gas and English water industries were split up and sold off.
Exchange controls, in operation since the war, were abolished in 1979. This led to more volatile exchange rates, with the pound reaching a low of $1.054 on 25 February 1985 after which it recovered to almost $2 in February 1991. British net assets abroad rose approximately ninefold from £12 billion at the end of 1979 to nearly £110 billion at the end of 1986, a record post-war level and second only to Japan. Privatisation of nationalised industries increased share ownership in Britain: the proportion of the adult population owning shares went up from 7% in 1979 to 25% in 1989. The
Single European Act (SEA), signed by
Margaret Thatcher, allowed for the free movement of goods within the European Union area. The ostensible benefit of this was to give the spur of competition to the British economy, and increase its ultimate efficiency. The
Financial Services Act 1986 led to a
deregulation later dubbed as
Big Bang. The early 1980s recession saw unemployment rise above three million, but the subsequent recovery, which saw annual growth of over 4% in the late 1980s, led to contemporary claims of a British 'economic miracle'. There is significant controversy as to whether Thatcherism was the reason for the boom in Britain in the 1980s;
North Sea oil has been identified as a contributing factor in the increases in economic growth in the mid and late 1980s. However, many of the economic policies put in place by the Thatcher governments have been kept since, and even the Labour Party which had once been so opposed to the policies had by the late 1990s, on its return to government after nearly 20 years in opposition, dropped all opposition to them. Indeed, the Labour Party of the 1980s had taken a shift to the left following the election of
Michael Foot as leader in 1980, leading to a split in the party to form the centrist
Social Democratic Party, which formed an
alliance with the
Liberals and contested two general elections, with disappointing results, before merging in 1988 to form the
Liberal Democrats. The Conservatives were re-elected in 1983 and again in 1987, with a majority of more than 100 seats both times. By the end of 1986, Britain was in the first stages of an economic boom, which saw unemployment fall below 3 million and reach a 10-year low of 1.6 million by December 1989. However, the rate of economic growth slowed down in 1989, with inflation approaching 10% and fears of an imminent recession being rife in the national media. Interest rates were increased by the government in an attempt to control inflation.
1990–1997: the Major years In November 1990,
Margaret Thatcher stood down from the office of Prime Minister after losing first the confidence and then the support in Parliament of the Conservative Party's MPs, which she needed in order to continue.
John Major was elected her successor. The government's popularity was also falling following the introduction of poll tax earlier that year, while unemployment was also starting to increase again as another recession loomed. Opinion polls were suggesting that the next general election could be won by Labour, led by
Neil Kinnock since the resignation of
Michael Foot in 1983. Despite several major economies showing quarterly detraction during 1989, the British economy continued to grow well into 1990, with the first quarterly detraction taking place in the third quarter of the year, by which time unemployment was starting to creep upwards again after four years of falling. The beginning of another recession was confirmed in January 1991. Interest rates had been increased between 1988 and 1990 to control inflation, which topped 10% in 1990 but was below 3% by the end of 1992. Economic growth was not re-established until early 1993, but the Conservative government which had been in power continuously since 1979 managed to achieve re-election in April 1992, fending off a strong challenge from
Neil Kinnock and Labour, although with a significantly reduced majority. The
early 1990s recession was officially the longest in Britain since the Great Depression some 60 years earlier, though the fall in output was not as sharp as that of the downturn of the Great Depression or even that of the early 1980s recession. It had started during 1990 and the end of the recession was not officially declared until April 1993, by which time nearly 3 million people were unemployed. The British pound was tied to EU exchange rates, using the
Deutsche Mark as a basis, as part of the
Exchange Rate Mechanism (ERM); however, this resulted in disaster for Britain. The restrictions imposed by the ERM put pressure on the pound, leading to a run on the currency.
Black Wednesday in September 1992 ended British membership of the ERM. It also damaged the credibility of the Conservative's reputation for economic competence, and contributed to the end of the 18 years of consecutive Conservative government in 1997. The party had long been divided over European issues and many of these rifts within the party had still not been mended by 1997. Despite the downfall of the Conservative government, it had seen a strong economic recovery in which unemployment had fallen by more than 1 million since the end of 1992 to 1.7 million by the time of their election defeat just over four years later. Inflation also remained low, with the ERM exit in 1992 being followed by a gradual decrease in interest rates during the years that followed.
1997–2001: New Labour From May 1997,
Tony Blair's newly elected Labour government stuck with the Conservatives' spending plans. The
Chancellor,
Gordon Brown, gained a reputation by some as the "prudent Chancellor" and helped to inspire renewed confidence in Labour's ability to manage the economy following the economic failures of earlier Labour governments. One of the first acts that the new Labour government embarked on was to give the power to set interest rates to the
Bank of England, effectively ending the use of interest rates as a political tool. Control of the banks was given to the Financial Services Agency. Labour introduced the
minimum wage, which has been raised every year since its introduction in April 1999. The Blair government also introduced a number of strategies to cut unemployment, including an expansion of the public sector. Unemployment was constantly below 1.5 million during the first half of the 2000s – a level not seen since the late 1970s, although the government never succeeded in getting unemployment back into the six figure tallies which were seen for most of the 30 years after the end of World War II. The level of trade union membership fell sharply in the 1980s, and continued falling for most of the 1990s. The long decline of most of the industries in which manual trade unions were strong—e.g. steel, coal, printing, the docks—was one of the causes of this loss of trade union members. In 2011, there were 6,135,000 members in TUC-affiliated unions, down from a peak of 12,174,000 in 1980. Trade union density was 14.1% in the private sector and 56.5% in the public sector. ==21st century==