Operation of monetary policy

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

The period under review remained one in which it was difficult to interpret monetary conditions. On the one hand, the growth of £M3 continued at a high rate and the exchange rate weakened (largely in lagged reaction to a renewed fall in oil prices). On the other hand, M0 remained comfortably within its target range, the rate of inflation, as measured by the retail price index, fell and the real economy lacked strength. Market pressure for a reduction in interest rates emerged from time to time, but was not strong or sustained. In these circumstances, the authorities judged that there was no sufficient case for a move in interest rates in either direction.

Operation of monetary policy