The evidence is inconclusive.
The BBC Radio 4 programme, More or Less, (21 August 2009 about 20 minutes in) found there had been grade inflation at A level of two grades.
A year later, in August 2010, FullFact investigated allegations of grade inflation. It concluded “on the testing question of grade inflation in the UK, it seems difficult to offer any kind of conclusive answer.”
In 2011, the Organisation for Economic Cooperation and Development (OECD)* said the apparent rise in GCSE grades in England was not matched by a similar rise in the Programme for International Student Assessment (PISA) scores which had remained static.
The media regularly reports that there has been grade inflation but this is not always upheld by evidence. For example, FullFact cast doubts on claims in a Daily Telegraph article that maths standards had declined. The academic whose research had been used by the Daily Telegraph admitted that the Trends in Maths and Science Survey (TIMSS) actually showed a different trend – that English pupils’ maths ability improving . TIMSS is a smaller survey than PISA – nevertheless it showed that English pupils were among the top performers globally.
Witnesses to the Education Select Committee (January 2012) gave mixed answers to the question of what caused rising GCSE results and whether this increase was actually grade inflation. One academic claimed there was “not a great deal of evidence for grade inflation” – there had been “interesting” research but “all had methodological issues”. The cause of rising results was explained variously as “teaching to the test”, “more efficient teaching”, “more appropriate provision in schools”, pupils choosing courses they were more motivated to study and schools concentrating on pupils at the C/D borderline. One witness said that outcomes would go up over time when exams test “a pre-defined set amount of subject matter” and where question papers and mark schemes were available. He thought the term “grade inflation” when applied to these rising outcomes was a “kind of a negative terminology”.
Written evidence to the Education Select Committee (28 February 2012) said that "English public examinations are respected internationally and emulated in many countries…there is a great deal of public confidence in the examination system in England. Nonetheless, recent press reports will reduce confidence levels, at least temporarily.” The authors said that falling exam standards were a “prevailing media narrative”. Although the authors did not say so, this perception has been fuelled by the present Government. One recent example is Nick Gibb, former Minister for Schools, who told the BBC that "There is evidence from academic researchers that show that there has been grade inflation over the decades.” But evidence to the Education Select Committee did not back this up.
CONCLUSION: there is no firm evidence to support fears about grade inflation.
*OECD Economic Surveys 2011, not available freely on the internet, but details of how to obtain a copy are here.
UPDATE 24 April 2013
The Oxford University Centre for Educational Assessment (OUCEA) published a report summarising evidence about examination systems. It found that grade inflation at GCSE had not been established.
Updated 24 April 2013