The boom and bust phenomena were short-term cycles of between five and seven years during which the economy swung from periods of rapid expansion to equally rapid contraction.

Over the period as a whole, however, the long-term average rate of growth was largely unchanged.

This led to periods of great instability. During the 1970s, for example, growth ranged from +7.3% (1973) to –2.2% (1979), as inflation at one point soared to over 24%. During this decade, moreover, the average annual base rate was in double figures for four of the ten years.

The 1980s were as volatile, with negative growth (recession) at the end and the start of the decade (at a time when inflation climbed to 18% and base rates reached 17%).

Following the ERM debacle in 1992, the policy priority of managing inflation led to a more stable environment (see The Effects of Stability and Low Inflation 6.1 The 90s & 00s vs the 70s & 80s).

Cumulatively, the UK economy grew by around 55% in real terms between 1992 and 2008, inflation peaked at 3.5% and base rates were above 7% for only a few months (they were never lower than 7.5% in the entire 1980s).

This stability helped create confidence in the private sector and enabled businesses to take a medium to long term view.

Despite the impressive growth, inflation, interest rate and labour market figures, it was apparent that the economy was built on rather shaky foundations.

Boom and bust had not been abolished, it was merely on hold. And it made an emphatic comeback in the second half of 2008.

For too long, GDP growth was dependent on consumers who spent and borrowed and a government which spent and borrowed.

Investment and trade had underperformed and the unbalanced economy could not be sustained. Had it been slowed earlier (with higher interest rates), the correction might have stopped short of recession. But, because it was allowed to continue, the bump has been bigger.