For most of the last decade, it appeared that the macroeconomy had finally become stable. Inflation seemed under control, economic growth was steady and unemployment was low by historical standards. This was the case not only for the UK, but for many other industrial nations as well. China and India were making great progress in terms of growth and poverty alleviation; there was even some hint that the countries of sub-Saharan Africa were beginning to move forward. Then everything went horribly wrong and we were faced with a global recession.
When Tony Blair’s government came to power in 1997, one of its first macroeconomic actions was to give the Bank of England independent responsibility to use monetary policy to achieve the government’s inflation target. This was seen by many as a bold and effective step to take in order to raise the credibility of macroeconomic policy.
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