This article covers the period from early October to December.
In the fourth quarter, evidence that the economy had entered recession continued to accumulate, as a result of which the authorities found themselves facing persistent, and at times exceptionally strong, market expectations of lower interest rates. However, with sterling generally weakening within the ERM and with the inevitable lags before evidence of a fall in underlying inflation could be expected to appear, any easing of policy would have been premature. The need to convey the authorities' anti-inflationary resolve to both the markets and the wider economy was the focus of official operations and policy statements over the period.
Before the end of the quarter, the consistent message from official statements, supported by the tight daily stance in the Bank's money-market operations, had come to convince the markets that an early further fall in interest rates would not be possible.
Operation of monetary policy