Inflation at 12% and climbing, unemployment at 2.6%, the oil price quadrupled in three months and the country working a three-day week. This is the hardest starting position in British economic history — and now you can play it.
Play the 1974 scenario →In October 1973 the Yom Kippur War broke out and the Arab members of OPEC cut production and embargoed exports to states they judged to have supported Israel. The price of crude went from around $3 a barrel to around $12 in the space of a few months. Nothing like it had happened before: the industrial world had spent the post-war decades assuming energy was cheap and would stay cheap, and had built itself accordingly.
Britain took it harder than most. The National Union of Mineworkers began an overtime ban in November and a full strike in February, coal stocks fell, and from 1 January 1974 Edward Heath's government put commercial users of electricity on a three-day week to conserve fuel. Television shut down at half past ten. Inflation was already running at about 12% before the oil price had finished feeding through.
Inflation 12.0% · Unemployment 2.6% · Bank Rate 12.5% · Twenty quarters, Q1 1974 to Q4 1978
The scenario scripts the real shocks rather than rolling dice, so everyone plays the same history and the scores mean the same thing.
An energy shock is a supply shock, and supply shocks are the nastiest thing that can happen to a central bank. A demand shock pushes inflation and unemployment in opposite directions, so there is an obvious lever to pull. A supply shock pushes them the same way: everything costs more and the economy produces less. Both of your targets break at once, and every action that helps one hurts the other.
Worse, the shock arrived on top of an economy already running hot, with inflation in double digits and unemployment at 2.6% — a level that would be extraordinary today. There was no slack to absorb anything.
And the thing that turned a bad year into a bad decade was expectations. Once prices have been rising fast for long enough, people stop treating it as a blip and start building it in — pay claims are pitched off last year's inflation, firms raise prices in anticipation, and the whole thing becomes self-sustaining. That is a wage-price spiral, and by 1975 Britain was in one. Inflation peaked at 24.2% in August 1975.
Not enough, early enough — though that is very much easier to say now.
Minimum Lending Rate, the Bank Rate of its day, was at a then-record 13% in November 1973 and was cut through 1974 rather than raised, on the reasonable-sounding view that the economy was already contracting and that an oil price rise was a one-off hit to the price level rather than an ongoing inflation. Policy leaned instead on incomes policy: the Social Contract with the unions, and from 1975 explicit pay limits.
The reckoning came in 1976, when sterling fell far enough that the government sought a loan from the IMF and accepted spending cuts as a condition. MLR reached 15% that October. Inflation did come down — to about 8.4% by the end of 1978 — but unemployment had more than doubled to 5.7% on the way, and the fall did not hold: by 1980 inflation was above 20% again.
One honest caveat. In 1974 the Governor did not actually set interest rates — the Bank of England did not gain operational independence until 1997, and rates were ultimately the Chancellor's call. The game hands you a power the real Governor of the day, Gordon Richardson, did not have. What it gets right is the problem, not the chain of command.
You get one enormous advantage over the people who lived it: you know it is coming. You are told, on the intro screen, that the oil price has just quadrupled. They had to work out in real time whether this was a blip or a regime change, using data that arrived months late and got revised afterwards.
You also get one disadvantage, which is the honest part. You cannot see the neutral rate — the level at which policy is neither squeezing nor stimulating. Nobody can; it is estimated, not measured, and the estimates disagree. Your only read on it is the Committee's vote. That was exactly the fog the real decisions were made in.
The other thing worth knowing before you start: the deflation trap on the other side is real. Slamming rates to 20% will break the spiral, and in testing it reliably overshoots into falling prices and 9% unemployment — which scores worse than a steadier hand. The 1970s had two ways to fail, and most players find the second one themselves.
Not against the 2% target — nobody was getting to 2% from here. You are judged against what actually happened. The results screen puts your peak inflation next to 24.2% and your end-of-term inflation next to 8.4%, and par for the scenario is set from measured runs: doing nothing scores around −346, because the spiral runs away with you. Beating par means you genuinely broke it.
Scores are deeply negative and that is the point. There was no good outcome available in 1974. There were only less bad ones, and finding out how much less bad is the whole exercise.
Play the 1974 scenario →See also 1992, where the constraint was a currency rather than a cartel, and 2008, where prices fell instead of rising. The equations behind all of this are set out in how the model works — including the expectations term that drives the spiral.