This article covers the three months from mid-November 1984 to mid-February 1985.
The period under review was one of serious turbulence in international markets, notably the foreign exchange markets and the oil market. With the domestic monetary situation partly obscured by distortions to the money figures, this turbulence affected sterling financial markets, where short-term interest rates rose by a total of 41 percentage points.
The marked easing in US monetary policy during the summer did not prevent a continuing rise in the foreign exchange value of the dollar, which gathered pace during the period, partly, no doubt, on account of market fears that US monetary policy could tighten once more. The impact of the dollar's strength on sterling's exchange rate was compounded, particularly in December and January, by market concerns about a possible fall in dollar oil prices. On the domestic front, the £M3 figures for banking November were seriously, though unquantifiably, distorted by the large cash flows associated with the government's sale of shares in British Telecom; this weakened the earlier market confidence that the domestic monetary and fiscal situation was under adequate control.
Published on
01 March 1985
Operation of monetary policy