Commentary

This Commentary is mainly concerned with developments during the three months from February to April. Costs and prices continued to rise steeply, although there were signs of a check to the rate at which wages and salaries were increasing. At the same time domestic activity slackened further. In his Budget statement, the Chancellor of the Exchequer announced measures to increase demand modestly later in the year, and to ease financial pressures on companies. He also proposed a number of fundamental changes in the tax system, to take effect in 1973 or later; more immediately, new techniques of monetary control are being examined. There were further substantial inflows of exchange during the first quarter, partly to relieve liquidity shortages i n the revenue season and partly to take advantage of favourable interest differentials. Bank rate was reduced on 1st April. Sterling remained firm during that month and continued so early in May, when movements of dollar funds into deutschemarks and some other currencies became very large; it was announced on 9th May that the deutschemark and the Dutch guilder would, for a time, be allowed to find their own levels in the exchange markets, and that the Swiss franc and the Austrian schilling were to be revalued. The expansion of the money stock as a result of the exchange in flows in the first quarter was partly counteracted by unprecedentedly large official sales of gilt-edged stocks; in the event, the money stock increased at much the same rate as in earlier quarters of the financial year, but domestic credit contracted somewhat.

Commentary