ABSTRACT
The Government persuaded itself that there was no conflict of objectives between low inflation and high growth and that one led to the other, with the help of supply-side measures to improve the functioning of the economy. The Thatcherites felt that it was the cardinal sin of the Heath Government to have departed from this kind of monetarist policy in a Keynesian u-turn designed to deal with unemployment in 1972. The 1979 election manifesto made the most of the ineffectiveness of Labour monetarism in the face of determined trade unions. The Government’s aim of reducing inflation had to be reconciled with its other main economic principle, that of the free market. By 1984 it was clear that, in the five years of the exchange-rate-mechanism existence, member countries had succeeded in both stabilizing their exchange rates and reducing their inflation rates, perhaps not as rapidly as the UK but with less sacrifice of output and employment.
