By Luca Benati of the Bank’s Monetary Assessment and Strategy Division.
This article provides an historical perspective on the post-1992 inflation-targeting regime in the United Kingdom. It assesses nearly 400 years of UK economic history using three alternative gauges of stability: business-cycle fluctuations, the Phillips correlation between inflation and unemployment and the degree of inflation persistence. The first of these measures suggests that the inflation-targeting regime has been characterised by the most stable macroeconomic environment in recorded UK history. The second points to a significant improvement in the stability of the Phillips inflation-unemployment correlation during the post-1992 period. The third stability measure suggests that inflation persistence in the United Kingdom has been the exception, not the rule.