According to the Office for National Statistics, the current UK unemployment rate is at 4.7% and the current inflation rate is at 2.1%. Prior to the pandemic, during the summer of 2019, unemployment levels in the UK were at a 44-year low of just 3.8%.
The last time unemployment was at the same level was all the way back in 1974. And the 1970s are often remembered as a time when the economy struggled as inflation spiralled and businesses faced a three-day week.
Though the UK is in unprecedented amounts of government debt today, the inflation rate remains a fraction of what it was at that time. In 1974, the inflation rate was at a huge 16.04%, and that wasn’t even the highest it would reach that decade.
The post-war industrial boom
Throughout the post-war era and up to the early 70s, the British manufacturing industry boomed. Production levels were even greater than during the Industrial Revolution.
The strong influence of trade unions at the time helped ensure that companies were able to retain as many employees as possible.
Through communication and compromise between the unions and the government, wages were kept comparatively low in order to allow more people job security.
The Conservative Party was in power. And prime Minister Edward Heath maintained a clear focus on retaining Britain’s status as an international industrial leader.
The “October War” and the oil crisis
The progress being made by several different British industries ground to a halt in 1973, thanks to the oil crisis.
In the fallout of the Yom Kippur War, which was fought in October 1973, the Organisation of Arab Petroleum Exporting Counties issued an embargo for nations seen as supporting Israel during the conflict.
Initially, the targeted countries included the UK, the US, Canada, Japan, and the Netherlands. This list was later expanded to include other allied nations. The embargo ran through to March 1974, but by that time, the global price of oil had already risen by nearly 300%.
With oil so expensive, companies started to lay off their workers in droves. Inflation began to soar, but wages remained stagnant.
This combination led to the start of major industrial action, spearheaded by miners.
The 3-day week and power shortages
A lack of oil and a lack of coal mining means a lack of power. Electricity production fell sharply since it was largely produced in coal-burning factories.
To conserve power, the prime minister introduced the three-day work order, which limited the commercial consumption of electricity to just three consecutive days each week.
The goal was to ensure that businesses could continue trading while also attempting to avoid further inflation.
However, inflation reached its peak in 1975, at a staggering 22.6%.
|Unemployment rate (%)
Out of the frying pan, into the fire
Inflation and unemployment fluctuated through the following years until the aptly named “winter of discontent” in 1978. This was kick-started by a wage dispute between the Labour prime minister, James Callaghan, and the unions.
Strikes broke out across the country. Starting in the private sector, but rapidly developing across various industries.
The country almost ground to a halt. Some of the most notable workers to strike were the grave diggers, binmen, and nurses.
The dead were left unburied, the streets were covered in litter, and hospitals were reduced to emergency visits only.
Careful decisions needed to avoid a return to the bad old days
While it’s unlikely that the inflation rate will reach the levels of the 1970s, it’s reasonable to approach economic data over the next few months with an open mind.
Considering the inflation rate has tripled over the last three months as lockdowns continue to ease, the chancellor and Bank of England have many tough decisions to make. If they get them wrong, could we see history repeating?
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