Original Article: Is unemployment still the price we have to pay for low inflation?

News Summary

The article discusses the Phillips curve, the inverse relationship between unemployment and inflation, using recent UK data. UK unemployment rose to 5.2% in the October-December 2025 period, up 0.8 percentage points from a year earlier, while inflation fell from 3.4% in December to 3% in January. The Bank of England’s monetary policy committee uses the concept of economic “slack” to gauge inflationary pressures, with unemployment as a key component. The article references former Chancellor Norman Lamont’s 1990s statement that rising unemployment was a price worth paying to lower inflation. It also describes the origins of the Phillips curve by New Zealand economist AW Phillips, who analyzed UK data from 1861-1957, and his invention of the Phillips machine, a hydraulic model of the economy. The piece suggests that the Phillips curve remains relevant today, as the Bank of England considers cutting interest rates amid rising unemployment and falling inflation.

IB Economics Connections

This article provides a real-world illustration of Unit 3.3 (Macroeconomic objectives) in the IB Economics syllabus, specifically the trade-off between low unemployment and low inflation represented by the Phillips curve. The inverse relationship between unemployment and inflation is a core concept in macroeconomics, with policymakers often facing difficult choices between these two objectives. The Bank of England’s focus on economic “slack” reflects the Phillips curve framework, where higher unemployment reduces wage pressures and helps lower inflation. The article also connects to Unit 3.5 (Demand-management: monetary policy), as the Bank of England considers interest rate cuts in response to rising unemployment and falling inflation. The historical reference to former Chancellor Norman Lamont’s statement highlights the political and social implications of this trade-off, while the description of the Phillips machine offers a tangible example of economic modeling. For IB students, this case demonstrates how theoretical concepts like the Phillips curve are used by central banks to inform policy decisions, and how real-world data can validate or challenge economic theories over time.

Tags

Macroeconomics, Macroeconomic objectives, Inflation, Unemployment, Phillips curve