LONDON (Reuters – Britain’s inflation rate climbed to 5.5% in January, its highest level since March 1992. It is forecast to rise to 7% by April. This raises fears about a wage-price spiral which once plagued the economy.

These are the five factors that have changed inflation since the 1990s.

BANK of England – In October 1992 the British central bank received an inflation target. This was after it had been removed from the European Exchange Rate Mechanism, which kept sterling pegged to a basket of European currencies.

1997 saw the establishment of full operational autonomy for the central bank, which took control of the interest rate policy and took responsibility for supporting or slowing down the economy. Inflation has been around 2% per year since then.

THE LAWSON BOOM- Britain’s economy boomed between 1980 and 1990. The sharp increase in inflation was caused by the massive tax cuts that Margaret Thatcher’s finance secretary Nigel Lawson made. Rishi, currently finance minister, has managed to oversee the largest ever peacetime borrowing boom to boost the economy during COVID-19. But the tax burden will soon reach its highest point since 1960.

WAGE DEALS: Strong wage rises were another driver behind Britain’s high inflation in 1930. This was due to strong union membership, which has declined significantly in recent years. For much of the time since 2008-09’s global financial crisis, wage increases have lagged behind inflation.

STERLING – The pound was part of the European Exchange Rate Mechanism in March 1992. This kept the currency at an unsustainable value which made it impossible for the Bank of England and the government to protect against any speculative attack six years later, on “Black Wednesday”. Britain’s recovery was finally possible thanks to the de-pegging.

INTEREST RATES-The BoE held its base rate higher than 10% through the 1980s. In March 1992, it was at 10.375%. At 0.5%, the Bank Rate is about one-twentieth below that level. According to futures markets, it is likely to increase as the BoE tries to curb any long-term inflation increases. However, only up to 2% per year. It will likely peak at a much lower point than that, according to private economists.

CHINA – The rise in China and other low cost manufacturing countries during the 2000s has helped to lower inflation in wealthy economies. The gradual increase in costs in emerging countries and, more recently, the disruption created by the coronavirus virus pandemic have caused global supply chain problems, driving up the prices of many goods.