In past years the Bulletin has contained an annual article describing the financial flows between the various sectors of the economy in the most recent year for which data have been available. The present article discusses developments in 1988 and the first half of 1989 and attempts to relate them to the underlying stock positions of the main sectors. Despite problems affecting the measurement of financial transactions, a number of important developments are highlighted:
- The public sector moved into financial surplus in 1988-for the first time since the early 1970s. The full-fund policy resulted in a contraction in the gilt market.
- The personal sector was in financial deficit by the latter part of 1986, and increasingly so in 1987 and 1988. This was in part the result of attempts to unlock some of the increase in housing (and other) wealth seen over the 1980s. Consequently, borrowing from banks and building societies increased sharply (but so too did deposits).
- Industrial and commercial companies (ICCs) also moved into substantial financial deficit in 1988, reflecting higher dividend payments and investment. Following the stock market crash, ICCs relied less on the equity market as a source of funds, and saw their net liquidity deteriorate as their borrowing rose. Takeover activity rose to new peaks, both domestically and overseas.
- Non-bank financial institutions reduced their gilts holdings as the market contracted. Instead, they resumed investment in overseas securities.