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<p>We employ a model that allows for unfunded fiscal shocks to study inflation and real activity in the UK. Unfunded fiscal shocks are not backed by future fiscal adjustments and are instead stabilized with inflation. In an estimated quantitative model, we find that fiscal inflation was high in the 1960s and 1970s, but came down in the early 1980s. Brexit marked a turning point with a significant increase in unfunded spending and fiscal inflation. Following the pandemic, fiscal inflation has risen steadily due to rapidly growing government spending, which has contributed to greater persistence in inflation. Monetary and fiscal policy coordination has been instrumental in achieving both a soft landing and bringing inflation to target for the UK economy in the post-pandemic period.</p>

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Fiscal Inflation in the UK

  • 期刊论文

  • 发表日期：

    2026年2月17日

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  • Francesco Bianchi,
  • Qingyuan Fang,
  • Leonardo Melosi

摘要

We employ a model that allows for unfunded fiscal shocks to study inflation and real activity in the UK. Unfunded fiscal shocks are not backed by future fiscal adjustments and are instead stabilized with inflation. In an estimated quantitative model, we find that fiscal inflation was high in the 1960s and 1970s, but came down in the early 1980s. Brexit marked a turning point with a significant increase in unfunded spending and fiscal inflation. Following the pandemic, fiscal inflation has risen steadily due to rapidly growing government spending, which has contributed to greater persistence in inflation. Monetary and fiscal policy coordination has been instrumental in achieving both a soft landing and bringing inflation to target for the UK economy in the post-pandemic period.