UK monetary and fiscal policy since 2007: Could we have done better?

On many counts, UK economic performance has been disappointing since 2007.Average GDP growth has been 1 per cent compared with around 3 per cent in the previous 15 years.Debt interest has become a significant expenditure item.After years of low inflation, we have experienced a significant spike of inflation, with the rate exceeding 10 per cent in 2022 and remaining stubbornly above the target range even today.In the previous 15 years there were no significant inflation spikes.I first became actively involved in economic forecasting at the London Business School in 1965.Over the past 60 years, I have observed significant changes to the monetary and fiscal policy framework.I would like to begin by setting out those changes and the main inflation episodes before trying to answer the question 'could we have done better since 2007'? | FOUR PHASES OF POLICYFor me, there have been four distinct policy phases in the UK over the past 60 years, which are shown in Figure 1.The first phase, ending in 1972, turned out to be 'The breakdown of Bretton Woods'.Interest rates were rising but the rates for the leading economies were still bunched together.The second phase, from 1972 to the late 1970s demonstrated 'Life without an inflation anchor'.Interest rates soared, were volatile and varied between countries.The third phase, from the late 1970s to the early 1990s could be characterised as 'The search for a new monetary anchor'.This included monetary targets, the Medium Term Financial Strategy and a failed membership of the European exchange rate mechanism (or ERM).Interest rates remained high by today's standards, but volatility was reduced and there were growing signs of rates in different countries coming closer together again.The final phase, from the early 1990s onwards is