UK Unemployment

 UK CPI inflation

There is a well known relationship in Economics, called the Philips Curve. It states that there is a trade off between inflation and unemployment. As unemployment rises inflation subsides.

This relationship was solid until the mid 1970's but broke down in spectacular manner with rising unemployment and inflation appearing simultaneously. However many continue to look for this relationship in the data and the figures announced in the last two days will be seen as a return of the relationship.

Inflation has fallen sharply, so sharply that the Bank of England are worried about undershooting their 2% target. Unemployment edged up, less than feared, but it remains on an upward trend.

The causes of the rise in unemployment and fall in inflation are well known. But this is a perfect example to use when looking at the trade offs between the two variables. It makes it very difficult for governments to achieve their objectives in both.

Can you see the trade off in the data above?

BBC on inflation figures here

BBC on the unemployment figures here