Operation of monetary policy

This article covers the three months from mid-February to mid-May 1986.

The main feature of the period under review was the exceptional strength of financial markets worldwide. Domestically, the policy indicators were mixed. Retail price inflation was falling and output growth sluggish during the period; and narrow monetary growth remained modest and the exchange rate firm. But the broader monetary aggregates grew very fast, and continuing rapid growth of unit labour costs suggested that domestically-generated inflationary pressures were still uncomfortably high. In this context, the UK authorities allowed interest rates to fall, but at a more measured pace than the markets at times were suggesting.

Operation of monetary policy