Operation of monetary policy

Published on 01 March 1982

Short-term interest rates fell in the three months to mid-February (the period with which this review is principally concerned) despite a sharp rise in comparable US interest rates.
Monetary developments suggested a cautiously encouraging picture and the exchange rate remained firm. The rate of growth of the broad aggregates slowed, aided by further recovery of tax delayed by the Civil Service dispute; but bank lending to businesses and persons continued to rise rapidly.
Massive cashflows from the banking system to the Government were caused by the main tax revenue season, the collection of delayed tax, and continuing official sales of central government debt. The Bank's open-market operations injected £3½ billion (net) of cash into the money market, taking its holdings of eligible bank bills to record levels.
The UK non-bank private sector continued to buy large amounts of central government debt, with more emphasis than previously on national savings and certificates of tax deposit.
The flow of new equity issues slackened towards the end of 1981 but the total of new equity capital issued over the year was still the highest in real terms since 1976. In February, Barclays Bank announced the largest ever conventional fixed-interest sterling stock issue by a commercial borrower.
In the Budget, the Chancellor set a range of 8% - 12% for the growth in 1982/83 of the broad monetary aggregates, sterling M₃ together with PSL₂, and the narrow measure, M₁. He also abolished all restrictions on the holding of index-linked gilt-edged stocks.