At times during this period, rather than targeting inflation, interest rates were being used to target the value of the pound – the UK being in the Exchange Rate Mechanism or ERM from 1990.
In 1992 the UK left the ERM and changed the way it used monetary policy – it could use interest rates to influence inflation, not the value of the currency.
Norman Lamont, Chancellor 1990-1993, on 'Black Wednesday'
The government became one of the first countries to introduce an inflation target, after New Zealand (1989) and Canada (1991).
At the same time, new monthly meetings between the Chancellor and the Governor of the Bank of England, together with the publication of meeting minutes, provided greater transparency around decisions over the interest rate.
Both inflation-targeting and improved accountability helped lower inflation and keep it within its target range.
However, monetary policy was not free of political influence. This undermined the credibility of the inflation target, as people believed the government could always lower rates before an election.
This helps explain why inflation expectations were consistently at the top of the target range during this period.
In 1997, the government granted the Bank of England control over monetary policy.
The Bank was now able to set interest rates without input from ministers, and was accountable for achieving the inflation target set by the Chancellor.
After Bank of England independence was announced, expectations for inflation dropped immediately.
Inflation between 1997 and 2003 averaged 2.4%, very close to the government target.