Monetary operations

Quarterly Bulletin 1997 Q3
Published on 01 September 1997
  • UK official interest rates were increased twice in the second quarter. The first move, from 6% to 6.25%, followed the Monetary Meeting between the new Chancellor of the Exchequer and the Governor of the Bank of England on 6 May. After this meeting, the Chancellor announced that the Bank was to be given operational responsibility for setting short-term interest rates to achieve the Government’s inflation target.(1) The second increase in official rates, to 6.5%, was announced by the Bank on 6 June following the first meeting of the Monetary Policy Committee. The Bank raised its repo rate again, to 6.75%, on 10 July—after the period covered by this article.
  • Sterling rose by 3.4% to 102.1 on its effective exchange rate index (ERI) in the second quarter: by the end of June it had risen by 24% from its all-time low of 82.2 on the ERI reached in November 1995, and by 21% since the recent appreciation began in August 1996.
  • The gilt yield curve flattened markedly in this quarter, with longer yields and derived inflation expectations falling sharply after the Chancellor’s announcement on the new monetary policy framework. The yield on the ten-year benchmark gilt fell by 61 basis points to 7.09% during the second quarter as a whole.
  • Gilt sales of £8.6 billion were made in the quarter, about one quarter of the initial gilt sales target for the 1997/98 financial year. A reduced target for gilt sales was announced in the Budget on 2 July.

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