The onset of the Falklands crisis on 2 April came roughly half-way through the three banking months with which this review is mainly concerned (mid-February to mid-May). In the six weeks up to that date, sentiment in the financial markets had generally been good. The Budget, on 9 March, was well received. Short-term interest rates had fallen significantly, with base rates down by 1% to 13%, and gilt-edged prices had continued the sharp rise begun in January. Sterling, apart from a temporary dip in mid-March, remained strong despite fears that some favourable influences were ending and that short-term interest rates were again about to rise in the United States. Domestic news was generally encouraging, with further evidence of subdued monetary growth through the winter and increasing confidence that the annual rate of retail price inflation could soon fall-and stay-below 10%. The authorities, for their part, accepted that a decline in short-term interest rates was appropriate. They continued to sell sizable amounts of debt but, with the central government's financial position unexpectedly strong in March, the immediate need to sell debt to restrain the growth of broadly defined money was less than 70 for some time.
Published on
01 June 1982
Operation of monetary policy