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Price Inflation in the UK: Has Anything Changed?
Author(s) -
Coutts Kenneth,
Henry Brian
Publication year - 1997
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.00062
Subject(s) - economics , inflation (cosmology) , unemployment , monetary economics , keynesian economics , relative price , wage , incomes policy , price level , macroeconomics , labour economics , physics , theoretical physics
Since leaving the ERM, the UK has had low inflation while unemployment has fallen substantially. This suggests that wage and price behaviour may have changed over the recent past. In this article, Ken Coutts and Brian Henry review the evidence for such change, particularly in pricing behaviour, but find little convincing evidence of a major structural shift. Rather, low inflation can be attributed to the effect of weak demand and low capacity utilisation on prices (and wages) which are larger and longer lasting than is generally believed, together with beneficial effects from low world inflation. On leaving the ERM, the government also instituted a classic combination of expenditure‐switching and expenditure‐reducing policies which played an essential part in promoting recovery without increasing inflation.