The Economy of the 1970s

See previous decade - 1960s.

The 1970s was not just an era of dayglow trousers, lava lamps and the emergence of punk rock. It was a traumatic economic decade of stagflation, a three day week and the return of unemployment.

Graph showing combination of high inflation and falling output.

Things got off to a bad start, with a combination of inflation and strikes. To deal with growing inflation, the Heath government tried capping wages. This was fuel for industrial unrest, leading to frequent and widespread strikes. In 1973, the miners went on strike and were also joined by sympathetic trades unionists- led by, amongst others, the young and infectiously strident Arthur Scargill. Growing up in Thatcher's Britain, it is hard to remember how powerful trades unions actually were at the time. During Heath's government 9 million working days were lost to strike action - plus more to practises such as 'working to rule'. Flying pickets successfully blocked coal and coke factories, which at the time produced the majority of the nation's power. Suddenly the life source of Britain's energy was being blocked.

Britain might have survived the miners strike, if it had not been for another unexpected economic shock.

Oil Prices in 1970s

• blue line - nominal oil prices
• Yellow line - Real oil prices, adjusted for inflation

Since oil had become an intrinsic part of the economy, we had taken it for granted that oil could be bought cheaply. But, the 1973 oil crisis, changed all that. Suddenly the price of oil more than doubled and the UK faced an energy crisis to go along with a spike in inflation. The government seemed powerless as Britain was put on a three day week and TV was turned off at 10.30pm. Emergency speed limits were introduced to conserve petrol.

If in 1957, we had never had it so good, by 1973, it seemed we had never had it so bad. It was a return to the 1940s austerity; but with no obvious enemy, the public were less forgiving of this inconvenience.

1974, also saw an unwelcome return of a real recession. In the post war period, we had booms and busts, but, the bust were relatively mild, with only very minor declines in output. But, in '74, output fell 3.4% causing a return of high unemployment.

Inflation in the 1970s

The Winter of Discontent

The late 70s, inflation had continued to be a problem; with a combination of rising oil prices and rising nominal wages. Again the government sought to control the wage inflation by imposing wage caps. But, again the unions were in no mood for stiff wage settlements. Strike action broke out across the country, extending from the industrial heartlands to the public sector. Public servants from dustbin men to grave diggers in Liverpool went on strike. Unburied coffins in Liverpool piled up, and in cities across the UK, garbage went uncollected. Not for nothing, was that period of strike action called the 'Winter of Discontent'. It seemed the government was unable to control either inflation or the strike action. A feeling of powerlessness pervaded the country.

In some regards, the economic situation of the 1970s was not quite as bad as the dramatic Winter of Discontent suggested. Certainly the three day week was a radical event. But, it was relatively short lived. The 1970s was a period of rising living standards. Nor is the 1970s a vindication of monetarism and proof of the failure of Keynesian ism. See: How Really bad was the 1970s?

Yet, the UK economy had fundamental problems, and it needed a radical shake up. But, no-one could have predicted quite how radical the Thatcher revolution would be... (to be continued - see: economy of 1980s)

• Modern Economic History of the UK