The United Kingdom's inflation performance: an analysis by the CBI's economic staff. (Confederation of Banking Industry)

Introduction

Despite the improvement in the United Kingdom's relative inflation performance in the early 1980s, we have not closed the gap with our major competitors, particularly those in Europe. Indeed, the gap is widening.

Because has more than most to lose from inflation, not least because it undermines out international competitiveness. This will be even more apparent when the United Kingdom joins the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS).

In January this year, therefore, the CBI's Council asked its Economics staff to prepare a study of the underlying causes of the United Kingdom's current inflation problem.

This study is the response to that request. While we take full responsibility for any errors of commission or omission, we have been greatly helped by many CBI members. We have drawn on the advice of a panel of business and academic economists set up for the purposes of this study; Dr Charles Bean, London School of Economics; Professor Alan Budd, Chief Economist, Barclays Bank; Professor David Currie, London Business School; Richard Freeman, Chief Economist ICI plc; Giles Keating Research Director, CSFB Securities; Christopher Johnson, Group Economic Adviser, Lloyds Bank; Bill Robinson, Director Institute for Fiscal Studies; and Keith Skeoch, Chief Economist, James Capel and Co Ltd.

Although they are not ultimately responsible for the conclusions of this report, we are extremely grateful for their advice.

The fact that inflation has been a persistent problem for the United Kingdom economy under many governments suggests that there are no easy solutions available. It is not surprising, therefore, that some of the measures which we conclude are needed to bring down inflation could cause considerable difficulties for CBI members in the short run--indeed they are already doing so in many sectors.