Bank Rate was reduced from 6% to 51% on the 27th October 1960. The most important of the reasons leading to this decision was the desire to lower short-term interest rates and so help to curtail the flow of overseas funds to London. It was realised at the time that if the inflow continued a further reduction in Bank Rate might become appropriate.
Whether or not such a step could safely be taken would depend on the economic outlook at home. There was little evidence during the next six weeks to justify any substantial change in that outlook. The fall in demand for cars led to a steeper fall in car production and to an increase in short-time working. In industry as a whole, however, skilled labour continued to be scarce; and some important wage negotiations were in progress. The general outlook for domestic costs and prices, together with the unsatisfactory state of the balance of payments, still suggested that any relaxation in credit restriction would have to be approached with caution. Nevertheless, caution did not require rigidity; and at the beginning of December a further reduction in Bank Rate seemed appropriate on domestic grounds, so long as it could again be made without weakening the other measures restraining credit. Accordingly, Bank Rate was reduced from 51% to 5% on the 8th December.
Published on
01 March 1961
Commentary