Thatcher’s Economic Policies

In 1979, Mrs Thatcher was elected Prime Minister of the UK. At the time, the UK was experiencing double digit inflation, trades unions were powerful and there was a feeling British industry had become uncompetitive in the post war period.

Mrs Thatcher introduced revolutionary economic policies which had a deep impact on the UK economy.

The Thatcher Revolution

Monetarism

In the early years of the 1980s, Mrs Thatcher embarked on a policy of Monetarism. This involved trying to target the money supply to reduce inflation. It involved:

  • Higher interest rates
  • Higher taxes and spending cuts.

These policies were successful in reducing inflation, but, combined with a strong pound led to a deep fall in output. Unemployment rose to three million and there was a drastic decline in manufacturing output.

Some say, this was a reflection of the uncompetitiveness of UK exporters. Others argue the recession was much deeper than necessary and the decline in output was too big.

The link between money supply and inflation proved to be unreliable and by 1984, money supply targets had effectively been dropped.

See: UK Economy under Mrs Thatcher 1979-1984

Supply Side Policies

A key element of Thatcher economics was new market based supply side policies. This involved:

  • Privatisation of key public sector industries
  • De-regulation i.e. allow more competition
  • Reduced power of trades unions
  • Income tax cuts

More on: Supply side policies

The Lawson Boom

Due to supply side policies, the Conservatives felt they had presided over an ‘economic miracle’ which meant the economy could grow faster without inflation. The chancellor Nigel Lawson cut interest rates and taxes and allowed an economic boom. In the late 1980s, house prices rose creating a positive wealth effect. There was also a rise in consumer spending. This led to economic growth of over 5% a year. However, it also caused a rise in inflation to over 10%.

See: Lawson Boom

To reduce this inflation, another recession was caused. 1991-92 Recession

Economy Under Mrs Thatcher

1980s 

See: Economy of the 1980s

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