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during this period, we first need to understand the policies during 1970s. During the early 70's the rate of unemployment in the country was extremely high. In response to which the government budget in 1972 included high public expenditure and tax cut. This change was supposed to boost the economy and increase the consumer expenditure in the country as the people would have a larger disposable income but it bought about an unexpected result, instead of bringing down the unemployment, high inflation was witnessed along with rising unemployment arising out of stagnated growth.

In 1972 a decision was made to move sterling to half float rather than full float which prompted an extension of exchange control for the first time to the overseas sterling area. In that relation UK resident liked to move their funds to overseas sterling area countries whose currency got appreciated because of the change in policy.

In 1973, the oil prices quadrupled when the OAPEC members decided to proclaim oil embargo in response to the falling value of the US dollar. The government imposed control over supplementary special deposit scheme but rising commodity price in same year and the oil crises added to rising inflation and unemployment.

During the period 1971-1976 if we analyse, there is an increase in GDP till 1973 but it was associated with high inflation (above 20%) and high unemployment. GDP had been decreasing from 1937-1975 but again increased later due to government policies. Inflation rate was still high (highest in 1975 of 25%) which never comedown till 1973. If we observe graph after 1973, it declined till 1976. There was political crisis also behind this change in the float of sterling during 1972 which encourages UK residents to put their funds overseas countries where they can get more returns. Another thing there was high commodity prices and oil prices at international market. This period after 1972 called as stagflation.

Although there was steady growth witnessed over the years till 1979, the prices of oil again increased by 14.5% and then again by 15% which meant an overall increase of prices from around US$ 2 per barrel in the 70's to just under US$ 40 in the early 80's. This took a toll on all the sectors and economy in general. Suddenly the costs for almost all sectors of all goods and services market had risen dramatically as fuel was a necessity for all production processes. This meant that prices had risen regardless of the level of demand as firms tried to cover increased costs while keeping normal profit levels. The obvious end result of this was a decrease in the consumption expenditure of the people in UK.

UK Economy under Mrs Thatcher 1979-1984

In 1979, the incoming Conservative government had inherited an economy with an inflation of 27%. Thus, the government adopted a Monetarist approach to try and tackle the various economic problems of the UK. To control inflation, the money supply needed to be controlled which in turn required reduction of any government deficit. Therefore, extreme deflationary policies were implemented. Firstly taxes were raised and government spending cut. Interest rates were also increased, as the government sought to reduce inflation. These deflationary fiscal and monetary policies did have the effect of reducing inflation; however it was at a cost of falling Aggregate Demand and lower economic growth. In the middle