Towards a new consensus: The economy Flashcards
1
Q
How did Major inherit a tough economic situation?
A
- Decline in manufacturing output- lost 25%
- High interest rates
- Unemployment: Rose from 1.6 to 2.6 million between ‘91/’92
- Slump in house prices. Many people trapped in ‘negative equity’-paying mortgages that were higher than the value of their homes
2
Q
How was the economic situation different to the recession in the 80’s?
A
-damaged both the working class and traditional Tory voters
3
Q
What did Major’s government have to resort to in order to curb the economic bad situation?
A
- resort to high public spending
- Huge government borrowing e.g for NHS spending
4
Q
What was Black Wednesday and what was it’s impact?
A
Crash of the pound sterling forced Britain to exit the European Exchange Rate System (ERM)
5
Q
What was the exchange mechanism?
A
- Stabilise exchange rates between currencies in the EEC by limiting how much their value could change
- -> Limiting inflation
6
Q
What caused Britain to leave the ERM?
A
- £ Exchange value unrealistically high –> caused British exports to become overpriced . Major did’t want to devalue £.
–> Norman Lamount announced the decision to leave
7
Q
What were the short term negative effects of Black Wednesday?
A
- Conservative economic reputation tarnished–> Lab 15 point lead
- Eurosecptic anti deeper- integration stance strengthened (some saw Europe was to blame)
- Newspapers lost support for major
8
Q
What were the long term benefits of Black wednesday/Leaving ERM?
A
- Economic situation almost immediately improved
- Prevented Britain from having to keep high interest rates
- Employment rates rose & recovered. Economic growth outperformed EU partners.
- Housing markets began to pick up again
9
Q
What was the economic situation by 1997?
A
- Unemployment down
- productivity up
- consumer spending was up
- Negative equity was a thing of the past
