Monetary Policy and Inflation in the Second Elizabethan Age

2022 was a year to be remembered in the United Kingdom, as we emerged out of the pandemic but also experienced a mix of political and economic upheavals. Perhaps, though, it is the passing of Queen Elizabeth II that remains the most poignant. The United Kingdom that we know now is barely recognisable from the one that greeted Queen Elizabeth II when she came to the throne in 1952. The last seven decades have seen extraordinary changes socially, technologically, economically, and culturally.

In this box, we look back on the evolution of inflation and monetary policy – whose evolution has clearly been related to the ups and downs of inflation – over this time. We start, however, by noting that there is a striking parallel between the start of the second Elizabethan era and now: high inflation and a cost-of-living crisis. Indeed, we can think of monetary policy over this period as being characterised by the search for a nominal anchor that would enable this high inflation to be banished once and for all. Unfortunately, as we reached the end of the second Elizabethan age it seemed as if the search had been in vain.