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The British attempt to manage long-‐term interest rates in 1962 – 64.
William A. Allen1 Cass Business School
Abstract The British monetary authorities tried to encourage lower long-‐term interest rates through their government debt management operations between 1962 and 1964, consistent with a recommendation of the Radcliffe report. The implementation of the policy was complicated by the need for the Bank of England to act as a market-‐maker in the government securities market, and beset by misunderstandings between the Treasury and the Bank of England. The policy was quietly abandoned when the conditions of strong market demand for bonds on which it depended changed. The paper describes how the policy was developed and implemented, and the impact of political preferences on it. JEL classifications: E52, E58, E65, H63, N24. Keywords: long-‐term interest rates, debt management, monetary policy, Bank of England, Treasury, gilts, Radcliffe.
1 I am grateful to Richhild Moessner for very helpful comments on an earlier version of the paper. She is not responsible for the shortcomings of this one.
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1. Introduction. This paper describes an attempt by the British monetary authorities to manage long-‐term interest rates through their government debt management operations between 1962 and 1964, adding some detail to the account given by Capie (2010, pp 282 – 286), and providing an interpretation. Some institutional background is necessary. Government debt existed in three main types – gilt-‐edged securities (gilts), which were coupon-‐bearing bonds issued with maturities of several years and at least one year; National Savings instruments issued to individual savers; and Treasury bills, normally issued with a three-‐month maturity. Gilts and Treasury bills were marketable, but National Savings instruments were not. Treasury bills provided residual financing for the government if other forms proved insufficient, but Treasury bills counted as liquid assets for the commercial banks, which were required to maintain a minimum ratio of defined liquid assets to deposits; over-‐reliance on Treasury bills for government finance was regarded as potentially inflationary, both for that reason and because their short maturity meant that they were a close substitute for money. Gilts were traded in the Stock Exchange, where the market in them was made by jobbers. Until 1969, jobbing firms had to be partnerships, and the partners had, in principle, unlimited liability.2 It was hard for partnerships to accumulate capital, partly because of high rates of income taxation.3 During the Second World War, the supply of gilts had been massively enlarged: in 1946, the government debt/GDP ratio had been 274%; by 1962 it had fallen to 108%. Roughly two thirds of the government debt was in the form of gilts. Moreover, with the rise of pension funds and other institutional investors, gilt holdings became more concentrated and individual transactions became larger. For these reasons, the Stock Exchange jobbers were unable to make markets in gilts that the Bank of England considered sufficiently liquid. The Bank regarded market liquidity as one of the main attractions of gilts and was concerned that a deterioration in liquidity would lead to a rise in yields. Accordingly, though not apparently as the result of any conscious decision, the Bank came to act as a jobber itself – a largely unrecognized example of a central bank acting as ‘market-‐maker of last resort’.4 The development of the Bank of England’s role as a gilt-‐edged market maker will be described in a forthcoming separate paper.5
2 Discount houses, which were principally market makers in short-‐term bills and were financed by wholesale secured deposits, also made markets in gilts, but only for maturities up to 5 years. The Centre for Metropolitan History of the Institute for Historical Research at London University has assembled a very interesting collection of interviews with former jobbers and others, which is available on its internet site. See also Attard (1994 and 2000). 3 Morgan and Thomas (1962, p 237), Michie (1998, pp 391 – 393, p 437). 4 The phrase ‘market maker of last resort’ was widely used to describe central banks’ actions in the financial crisis of 2008, when they bought, or accepted as
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For present purposes, the important facts are that in the early–mid 1960s, the Bank of England combined the roles of issuing house, underwriter and leading market maker in gilts, and that that there was no pre-‐determined schedule of new issues. When a new issue was made, only a small amount was normally sold at the public tender. The remainder was acquired by the Issue Department of the Bank of England, which thus acted as underwriter, and was made available for gradual sale as a ‘tap stock’ in the secondary market.6 7It was also standard practice for the Bank to buy, and hold in the Issue Department, gilts approaching maturity, so as to spread through time the impact of the redemption on the money market. In this paper, ‘forthcoming maturities’ is taken to mean maturities due in the next 9 months. After the cheap money policy pursued by Chancellor of the Exchequer Hugh Dalton in the post-‐war Labour administration had tried, and failed, to establish long-‐term gilt yields at 2 ½%, there had been no generally-‐accepted objectives of debt management, except to refinance the heavy flow of maturities somehow. 8 Decisions were mainly ad hoc.9 The Radcliffe report (1959) had, however, said that the monetary authorities ‘must have and must consciously exercise a positive policy about interest rates, long as well as short, and about the relationship between them.’10 The long rate policy that began in 1962 can be regarded as an attempt to follow Radcliffe’s recommendation. It was also influenced by Prime Minister Harold Macmillan, who had a powerful desire to promote economic growth by expanding demand, and wanted lower long-‐term interest rates as a means to that end.
2. What the policy was and how it was implemented. Short-‐term interest rates were a very important influence on long-‐term rates,
collateral, assets that were no longer commercially marketable. However, 2008 was not the first time that central banks had performed that role. 5 Wormell (1999, chapter 22) describes its beginnings after the First World War. 6 It was obviously essential that the Issue Department should have enough financial capacity to perform these functions. The size of the Issue Department’s assets was determined by the size of the note issue, since the Issue Department can have no liabilities other than banknotes. The note issue in turn was determined by the public’s demand for banknotes. The Issue Department had had no other substantial assets since the abandonment of the Gold Standard, and the establishment of the Exchange Equalisation Account in the early 1930s had denuded it of gold and foreign exchange, and in practice it had ample capacity to fulfill its multiple roles in the gilt market. 7 In the Second World War, ‘tap stocks’ were bonds that were sold directly to the public by the Government. After the war, the meaning of the phrase changed and ‘tap stocks’ were sold by the Bank of England, on behalf of the Government, in the Stock Exchange. 8 See Howson (1993). 9 See Allen (2014). 10 Radcliffe (1959, para 982).
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and they were determined largely by the need to maintain the Bretton Woods parity of £1 = $2.80. Nevertheless, as in the United States, where Operation Twist had been undertaken in 1961 (see Swanson 2011), it was thought that debt management policy could exert some separate influence on long rates. The path of Bank rate, which acted as a ceiling for short-‐term interest rates on high-‐quality assets, is shown in Figure 1. Bank rate fell steadily as the exchange rate strengthened after the troubles of 1961, which in turn had been caused by excessive demand expansion in 1959 and the revaluation of the Deutsche Mark in March 1961.11 The latter had been widely thought to be inadequate, so that a further revaluation was expected. Bank rate was raised in February 1964 in response to the drying up of gilt sales and growing external deficits, which in turn could be attributed to renewed excesses in domestic demand. The timing of the increase in Bank rate that eventually occurred in February 1964 was delayed following unusual close consultation with the Federal Reserve and the U.S. Treasury, which were anxious to defend the dollar and contain outflows of gold.12 Long-‐term rates in the U.K. followed the same down-‐up pattern as Bank rate (Figure 2).
As the paper will show, it is impossible to estimate with any precision what difference the long-‐term rate policy made to gilt operations, let alone identify any separate effects that it may have had on rates.
Official discussion of a long-‐term interest rate policy appears to have begun in the Treasury in late 1961. Robert Armstrong13 circulated a note on the subject, which began with three assumptions:
1) ‘We should not try to lead [bond] prices against a trend, nor seek to force prices to move faster or further in a given direction than they would do if we did not intervene;
2) We should regards ourselves as entitled to control, but not ultimately to try and resist, a downward trend;
3) We should regard ourselves as free to control, and even to try and prevent (or stop) an upward trend.’ 14
The first assumption acknowledged the supremacy of markets in setting bond prices, while the asymmetry between the second and third assumption possibly reflected the experience of the post-‐war ultra-‐cheap money, when gilt yields became unsustainably low. Armstrong’s analysis was based on his view of the likely demand for capital equipment, which he expected to decrease in 1962 and 1963 following the 11 On excessive demand expansion in 1959, see Allen (2014). On the revaluation of the Deutsche Mark, see Holtfrerich (1999). 12 See Capie (2010, pp 193 -‐ 194). 13 Information about some of the people involved in the story is provided in ‘Cast of Characters’ at the end. 14 R. Armstrong – W. Armstrong, ‘Interest rate policy’, 14th November 1961, NA T326/39.
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investment boom of 1960 – 61. He noted that fears of inflation had affected gilt yields, but thought that such fears would become less influential in the future. And he assumed no change in fiscal policy. He concluded that:
‘…there is a good case for letting the current strength of the gilt-‐edged market be reflected in some rise in prices, even if that means somewhat lower net sales (it will not necessarily do so, since we have generally found a rising market propitious for selling). I am not suggesting anything dramatic; nor should we want to go too fast, so that, if the outlook changes and our assumptions are proved wrong, we can call a halt before we have gone too far. But, if we aimed at 5 ½ to 5 ¾ per cent. by March (current yields about 6 ¼ per cent.), I do not think that a reduction of this kind achieved gradually over the next four or five months, would be inconsistent with the general economic policy or outlook, or with prospects for the gilt-‐edged market.’15
i. Phase 1: Falling yields, March 1962 – September 1963
I have found in the archives no sign of further discussion of Armstrong’s note in the few months after it was written. Nonetheless, on 15th March, Jasper Hollom of the Bank of England wrote to the Treasury telling them that the supplies of long-‐dated gilts in the Issue Department were running low and that the Bank therefore had no control over the longer end of the gilt market. The portfolio would need at some point to be replenished. In discussing the choice of stock to be issued, Hollom commented that
‘In general, it would seem that our policy at the long end of the market should be to keep any tendency for prices to move upwards under restraint, so that the pace of the movement remains modest, but not to prevent a gradual progress to a rather lower long-‐term yield. One of the factors to be borne in mind is that, if we join the Common Market, it will be important that our long-‐term rates should be in an appropriate relationship to those of other countries.’16
Hollom advised issuing an additional £500 million of 5% Treasury 1986/89, though he considered 5 ½% Treasury 2008/12 a reasonable alternative. The question was extensively debated in the Treasury, and Sir Frank Lee recommended the 2008/12 stock to the Chancellor, Selwyn Lloyd.17 Lloyd’s decision, however, announced on 4th May, was for a smaller amount of the shorter stock: £300 million of the 1986/89. It was priced at 84 ½, compared with the market price at the time when the pricing decision was made, which was 84 3/16, ‘in order to lead the market in the direction in which we would wish it to
15 Ibid. 16 Hollom – Armstrong, 15th March 1962, BOE 5A44/13. It is not clear why the Common Market (the name given in those days to what is now called the European Union) was relevant, since no common currency was then envisaged. 17 Lee – Hubback, ‘Long term interest rates’, 19th April 1962, NA PREM 11/3760.
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go’.18 The Bank of England Quarterly Bulletin commented that ‘The new tranche was issued at a price slightly above the market price for the existing stock; in the circumstances prevailing this could be, and was regarded as an indication that some continuing fall in long-‐term rates would not be opposed.’19 On 14th June, Macmillan, who was chronically mistrustful of what he regarded as the hidebound orthodoxy of the Treasury and the Bank of England, wrote to Lloyd. He began: ‘You know how keen I am to get the long term interest rate down’, went on to express concern about falling industrial investment and concluded: ‘I hope you will most seriously consider the necessary technical steps to achieve a lower long term interest rate, even if it is not possible yet to make any further reduction in the bank rate.’20 An internal paper produced at about the same time in the Treasury, in response to an earlier inquiry from Macmillan, commented that:
‘the objectives of interest rate policy can be regarded as long-‐term and short-‐term. In the long-‐term the policy must doubtless be, as the Radcliffe Committee said, “to take a view as to what the long-‐term economic situation demands”. It is difficult to define what this means in practice, but the experience of the post-‐war years suggests very strongly that the “equilibrium” rate of interest in the circumstances of today must be much higher than the 2 ½% which Mr. Dalton aimed at, and must be much more in the region of 5% to 6%. The way in which the rate has behaved in the last three or four years, the better shape that the gilt-‐edged market is in, and the better control we have secured over the monetary system all suggest that we may have found something like the “equilibrium” rate between these two figures. From a long-‐term point of view, therefore, unless there is any very great change in circumstances, it would seem that we ought not to take any action which would cause the rate to depart too much either above or below this “equilibrium” range. From the short-‐term point of view the proper role of interest rate policy would seem to be that it should influence rates upwards when the pressure of demand is becoming excessive and the economy is getting into a boom, and downwards when the reverse is happening. Ideally these rises and falls should be about the long-‐term “equilibrium” level and should not be violent. The present situation, with a certain degree of slack in the economy, is one in which some fall in interest rates has been appropriate for some time and has in fact been going on; but if, as we believe, activity and the pressure of demand are likely to rise towards the end of the year, then it would be appropriate for the fall in interest rates to be arrested and perhaps even reversed. From this point of view, therefore, there would not seem to be any great scope in the immediate future for bringing about a marked or rapid fall in interest rates. This, of
18 Hollom, ‘Government stock operation, 4th May 1962, BOE 5A44/13. 19 Bank of England (1962a, p169). 20 Macmillan – Lloyd, ‘Long term interest rates’, 14th June 1962, T326.39.
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course, is on the assumption that the other parts of the Government’s policy remain much as they are: if there were drastic changes elsewhere, such as a fall in public expenditure or an increase in rates of taxation, then the scope for reducing interest rates would obviously be greater.’21
The paper also warned that ‘the Government cannot control interest rates but only influence them, and that the other influences which are at work all the time, could easily frustrate the Government’s policy, or, if it were pursued relentlessly, require the pumping out of more and more Treasury Bills.’ A short-‐dated issue (£400 million of 5% Exchequer 1967) was made in June, designed to absorb funds from the banks following the release of Special Deposits, of which £151 million was sold at the tender and the remainder by the end of September (Table 1).22 Discussion of how to reply to Macmillan revealed a misunderstanding between the Treasury, which was ultimately responsible for formulating the policy, and the Bank of England, which was responsible for advising on it and implementing it. A draft by William Armstrong sent to the Bank for comment said that ‘We are doing nothing to interfere with the decline in long-‐term interest rates’ and ‘We are no longer engaging in active funding – that is selling long-‐term securities in order to redeem short-‐term debt and thus lengthen the debt as a whole’. 23 Yet Hollom pointed out that neither statement was true: ‘We have recently been sizeable sellers of stock. For example during the three calendar months ended the 30th June we were net sellers to the extent of £221 million.’ He provided a table showing that during those three months here had been net sales of £369 million of over-‐5 year gilts, partly offset by £148 million of purchases of 1 – 5 year gilts.24 Hollom went on to say that ‘For all practical purposes, short of making a major public move, we cannot do more than choose between allowing an upward market movement to be reflected primarily in the rate or primarily in more funding. At present we are leaning towards movements in rate, while continuing to fund in slow time and at rising prices.’ On 11th July 1962, the Treasury sent Macmillan the final version of the paper25, which they had modified in the light of the Bank’s comments.26 It described the fall in long-‐term interest rates that had occurred since the peak of nearly 7% reached in August 1961. In considering why rates had not fallen further, it put
21 ‘Long-‐term interest rates and the encouragement of savings’, 15th June 1962, BOE C42/7. This paper, like others written in the course of the debate, did not specify precisely which long-‐term interest rate was under discussion. 22 Special deposits were deposits placed compulsorily with the Bank of England by the clearing banks. See Allen (2014, chapters 11 and 14). 23 ‘Long-‐term interest rates’, 3rd July 1962, BOE C42/7. 24 Hollom, ‘Long-‐term interest rates: comment on the draft note by Mr William Armstrong’, 5th July 1962, BOE C42/7 25 Lloyd – Macmillan, ‘Long-‐term interest rates’, NA PREM11/3760. 26 Lord Cromer, the Governor of the Bank, had sent a paper on the subject to the Treasury on 9th July: ‘Long-‐term interest rates’, BOE C42/7.
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some of the blame on local authorities, whose borrowing techniques ‘are resulting in their paying somewhat higher rates than they need’, but reassured Macmillan that work was in hand to address that problem. The paper identified
‘clear arguments for allowing the tendency towards lower rates to continue. Internally, a lower long-‐term rate would benefit the Exchequer, the local authorities and the nationalised industries: it would reduce the cost of investment by private industry, and of house purchase by individuals. On the external side, there are perhaps conflicting considerations. On the one hand, it could be argued that the position of, and the outlook for, the current account is still not good enough to allow us to make London markedly less attractive for the deposit of foreign funds, or markedly less expensive as a source of funds for foreign borrowers: on the other hand, it could be argued that lower long-‐term rates would fit in with the need for international co-‐operation on exchange matters, and would help to secure the benefits which would follow if London became the chief capital market of the European Economic Community.’
The paper went on to express some caution:
‘It is essential, however, that the fall in rates should not exceed that which can be sustained. A series of reversals of direction in this field would be calculated to destroy the new-‐found interest, both at home and abroad, in gilt-‐edged securities and so make the task of monetary policy needlessly more difficult.’
It noted the dangers of balance of payments problems, rising inflation and the continuing growth of demand for capital equipment; and concluded that
‘for some time it will be natural for long-‐term interest rates to remain relatively high (say, between 5% and 6%), and that if we want the present downward trend to continue, our best course is:
(a) so far as official operations are concerned, to continue to allow the
increasing demand for gilt-‐edged to be reflected primarily in rising prices rather than in sales by ourselves; and
(b) more generally, to maintain firmly our anti-‐inflationary policies.’ This was not much of a policy statement. It failed to explain how the balance between selling gilts and allowing prices to rise and yields to fall was to be measured, and in what sense the demand for gilts was currently being allowed to be reflected ‘primarily’ in rising prices. Moreover it failed to say what was to happen if the demand for gilts weakened and yields began to rise; but that was not to happen until autumn 1963 (Figure 2).
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On 13th July, Macmillan dismissed Lloyd and replaced him with Reginald Maudling, in what was called the ‘night of the long knives’.27 According to one interpretation: ‘With his eye to the forthcoming General Election Macmillan was determined to boost Conservative popularity by raising living standards rapidly though reflation. In his new Chancellor, Reginald Maudling, Macmillan had a man without Lloyd’s scruples about putting the economy at risk and one who was ready, in conjunction with Macmillan, to seek ways of ensuring expansion without producing runaway inflation which were unorthodox and contrary to Treasury thinking.’28 Macmillan himself criticised Lloyd for his slowness in producing the incomes policy that he believed would be sufficient to contain inflation.29 Maudling knew that the Prime Minister wanted faster economic growth quickly; moreover Tim Bligh, Macmillan’s private secretary, told Macmillan on 16th July that he would find a way of ensuring that the new Chancellor ‘should be aware of these papers [including the one about long-‐term interest rates] and should be in a position to discuss them with you in the near future.’30 In August, Cromer and Maudling discussed long-‐term interest rates. Hollom had briefed Cromer to stress the importance of lower budget deficits and to point out that local authority borrowing, unlike that of the central government, was not decreasing. As regards long-‐term interest rate, Hollom said ‘the long-‐term rate has now fallen from its peak twelve months ago of about 6 ¾% to something only a little above 6%; that this rate of fall seems quite fast enough; and that we would propose to handle our market operations in such a way as to do no more funding than is necessary to keep the movement as orderly and as continuous as possible.’ 31 Secondary market sales of the new tranche of 5% Treasury 1986/89 had not got under way until the end of June, but it was sold out in August (Table 1 column B).32 Between 15th June and 29th August, sales of the long tap were £269 million and of the short tap a further £289 million, but there were offsetting purchases of £279 million of stocks maturing up to 1968 and £86 million of later maturities, so that total net sales were just £193 million (Table 1, column B).33 The Bank wanted, and the Treasury agreed, to issue a new long tap to replace the 1986/89s, and proposed a new tranche of 5 ½% Treasury 2008/12, to be priced
27 On the ‘night of the long knives’ see Macmillan (1973, pp 90 – 95), Horne (1989, pp 339 – 350), Lamb (1995, pp 445 – 452), Dell (1997, pp 276 – 280), Thorpe (2011, pp 519 – 525). 28 Lamb (1995, p 450). 29 Macmillan (1973, p 91). 30 Bligh – Macmillan, ‘Treasury policies’, 16th July 1962, PREM11/3760. It is not clear that Maudling did become aware of the difference of opinion between Macmillan and the Treasury about long-‐term interest rates, as events in 1963 were to show. 31 Hollom, ‘Notes for Governor’s meeting with the Chancellor’, 10th August 1962, BOE C42/7. 32 BOE C11/22. 33 GDP in 1962 was £28,710 million.
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slightly above market levels. Their argument was strengthened by the decision to finance more local authority borrowing centrally, which implied that more gilt sales would be needed. Mynors, the Deputy Governor of the Bank, did ‘not much like issuing a 5 ½ at 93 for nearly 40 years when everybody, ourselves included, thinks that this may look like expensive borrowing in a few months’ time.’34 The issue, of £500 million priced at 95, nevertheless went ahead on 30th August. The market price at the time the pricing decision was made was 94 9/16, and the difference of 7/16 between that and the issue price was equivalent to a yield difference of 3 basis points.35 Not surprisingly, very little was sold at the tender. Yields continued to fall, and the Treasury became concerned. Radice suggested that ‘we should consider with some urgency whether the Bank’s control of the medium-‐term maturities in the market is adequate at the moment’ and ‘whether the gilt edged yields as a whole are rising [presumably he meant falling] faster than they ought to in the context of long-‐term interest policy’.36 Goldman, Padmore and William Armstrong agreed.37 There was a meeting at the Treasury on 18th October, as the tranche of 5 ½% Treasury 2008/12 issued at the end of August approached exhaustion. In a letter written the previous day, Alan Whittome (Hollom’s deputy) had told the Treasury that, apart from the remaining holdings of the 2008/12s,
‘we hold £300 million of stocks maturing in 1980 or after. In addition we hold some £75 million in the 1970/80 bracket. With a portfolio of this size, spread as it is over a number of stocks, we are in a position to restrain a fall in interest rates.’
Turning to policy objectives, he suggested, rather casuistically, that:
‘If we have to expect balance of payments troubles around the end of 1965 we must expect long-‐term rates to begin to rise about or rather before that time and it makes no sense to encourage a fall in yields which could itself exacerbate our balance of payments difficulties. But this is far from asserting that there should be no further fall in rates, particularly at a time when so many of the earlier arguments in favour of lower rates, for instance the expected level of investment by industry, remain. In general terms we think that we should be content if long-‐term rates were to fall to around 5% by early 1965; on the other hand we should take no steps to encourage them to fall and should be content if the market settled at a rate anywhere between 5 ½% and 5%.38
34 Annotation on Hollom, ‘Government loan programme’, 21st August 1962, BOE C40/448. The issue price was actually 95, not 93. In the event, not in a few months’ time but in a few years’ time, ‘everybody’ turned out to be wrong. 35 7d in pre-‐decimal sterling. 36 Radice – Goldman, 1st October 1962, NA T326/50. 37 Goldman – Padmore, 2nd October 1962, NA T326/50. 38 Whittome – Radice, 17th October 1962, BOE C42/7.
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The minutes of the meeting, which discussed what to do when the 2008/12 tap was exhausted, reveal more about how the policy was implemented:
‘On the technical level, the fall in yields had been helped by the way in which purchases of the tap stock had been made easier by a liberal switching policy. Up to the end of last week the Bank had been taking in at pries well up to market prices other gilt-‐edged stocks offered by would-‐be purchasers of the tap stock. In this way the existence of the tap stock had positively encouraged a favourable sentiment in the market. The main ground for adopting the policy of helping switching in this way was because the Bank was not anxious to fund aggressively in a period in which the credit squeeze was being steadily relaxed.’
The £500 million of the 2008/12 tap stock, whose ‘price was allowed to rise only slowly’39 was indeed exhausted on 19th October40. Moreover these sales were supplemented by the remaining £75 million of the 1967 short tap and sales of £173 million of a new short issue, 4% Treasury 1965, which, most unusually, had been sold out at the tender on 1st October. Nevertheless, total net sales of all stocks were only £174 million (Table 1, column C), the difference representing gilts bought in exchange for tap sales, including £227 million of maturities up to 1968 and £322 million of longer maturities. However, although net sales had been relatively modest, the average maturity of the debt had been lengthened. Looking ahead:
‘It was pointed out that, while net sales of securities by the Bank over the last six months (£394 million) had been large, they had been much smaller than the gross sales of tap stocks, and it was to be expected that the net appetite for stocks of all maturities in the immediate future would be big enough to exhaust the Issue Department portfolio at the same speed as the tap had been exhausted. The Bank also intended to continue the policy adopted this week of discouraging switching by offering comparatively unfavourable prices to purchasers of stocks in the portfolio who wished the Bank to take in other stocks.’41
This is an example of the way in which the Bank’s multiple roles, as government debt manager, underwriter, and market-‐maker in gilts, were mutually entangled. When it was particularly anxious to sell a tap stock or to facilitate falling yields, the Bank offered attractive terms for switches out of other stocks, and not just forthcoming maturities, but not otherwise.42 The meeting concluded that:
39 Bank of England (1962b, p 238) 40 Radice – Hollom, ‘Long-‐term interest rates’, 21st November 1962, BOE C42/7. 41 Note of meeting held in Mr Goldman’s room on 18th October, 1962, BOE C42/7. 42 Compare the last two rows of columns B and C in Table 1 with those of column F.
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‘It should be possible to know within a week or so whether the Issue Department’s portfolio would be sufficient to hold the position, the general objective being to prevent interest rates falling faster than would bring rates to 5%, or slightly above, by early next year.’43
Progress towards lower yields was set back by the Cuban missile crisis in late October 1962, and in the week beginning 19th October, the Bank supported the market by buying £49 million of gilts, excluding forthcoming maturities.44 Thereafter, downward pressure on long-‐term interest rates eased, and then went into reverse for a period (Figure 2). The Bank sold hardly any gilts (net) from its residual portfolio in the remainder of 1962 (Table 1, column D), and there were no further new issues until April 1963. The Bank of England Quarterly Bulletin (1963a, p 5) commented that:
‘After the rapid fall in yields during the third quarter, a quieter time was only to be expected, but a continuing downward drift in yields seemed likely and official policy was designed to allow this to happen.’
Early in 1963, yields increased (Figure 2) and the Bank bought £244 million of gilts net between 3rd January and 18th April; these purchases consisted entirely of forthcoming maturities; leaving those aside, there were small net sales (Table 1, column E). Rising yields posed an obvious problem for a policy which was predicated on falling yields, but the Bank of England was unwilling to abandon the cause. It sent the Treasury a paper, the brainchild of John Fforde, which concluded that:
‘An appreciable and early fall in long-‐term interest rates is desirable. The decisively favourable argument rests upon the judgment that the earlier conditions of capital shortage, world-‐wide and not confined to the U.K., have changed. There is not yet a glut of capital, but there is no longer great scarcity. If, therefore, we are to encourage lower rates, there remain the important questions of timing and method. No action by the authorities which causes it to be believed that gilt-‐edged prices have become in large part a matter settled by official intervention in the market can be good for the long-‐term health of gilt-‐edged. Unless a rise in gilt-‐edged prices could be brought about now by official ‘encouragement’, as distinct from ‘coercion’, it is an enterprise which had better not be attempted. One way of giving ‘encouragement’ would be to reduce short-‐term rates; but the external situation and the approach of the Budget preclude this for the time being. An alternative is to operate in medium and long-‐dated stocks so that as long as market selling pressure is never sustained rates will fall. In effect this would mean being prepared on days when the
43 Note of meeting held in Mr Goldman’s room on 18th October, 1962, BOE C42/7. 44 BOE C11/24.
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market is weak to take all the stock offered to us at prices only a little below current levels and on days when the market is firm to move our selling prices upward rather more rapidly than is usual. At the same time we should be prepared on occasions to buy longer-‐dated stocks against sales of those of shorter dates, when this could be done unobtrusively. Our operations would be assisted if rates on National Savings media and P.W.L.B. rates were to be reduced as fast and as far as circumstances would allow – and farther than is at present contemplated for National Savings. If we were seen to be operating in a way designed to reduce rates then we would risk losing all that we were trying to achieve. For if lower rates were thought not to be sustainable even in the short run the atmosphere created would be most unlikely to encourage private investment and there could also be heavy sales of gilt-‐edged by those prepared to back their own judgments. If we were to remain unseen we should not set ourselves targets and we should also be prepared in some circumstances to see prices fall, for we should be conspicuous if we attempted to steady a weak market that persisted over several days.’45
Treasury officials were sceptical. Cairncross thought the argument misguided, on the grounds that past and planned future fiscal measures would support investment, and that the balance of payments risks of the policy were underestimated.46 The Bank and the Treasury discussed the paper on 4th March. Hollom recorded laconically that:
‘The Treasury representatives tended to argue that the question of whether lower long-‐term interest rates were desirable was largely academic at the present juncture and also that the paper made insufficient allowance for the external position and for the fact that rates in other countries were tending to move upwards. They also suggested that, from the balance of payments angle, the interest rate was the most costly form of stimulus to industry that could be used and that it would be less effective than fiscal action. Despite all this they agreed at the end that to the extent that the long-‐term rate could be unobtrusively nudged downwards over the period ahead, this would be welcome; they were also inclined to think that, so far as short-‐term rates were concerned, an upward tendency would be beneficial.’47
45 ‘Monetary policy: long-‐term rates of interest’, 27th February 1963, attached to letter from O’Brien to Rickett, BOE C42/7. ‘P.W.L.B. rates’ were the rates charged by the central government for lending to local authorities. 46 Cairncross – Goldman, 4th March 1963, NA T326/111. 47 Hollom, ‘Long-‐term rates of interest’, 8th March 1963, BOE C42/7.
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Yields began to fall again in March, and the question of a new issue came back onto the agenda. There were substantial forthcoming maturities (£590 million due by May 1964). The Issue Department portfolio was concentrated at the short end, but the Bank was concerned to maintain bank liquidity, and sales of shorts would aggravate the concern.48 Hence Hollom argued, and won, the case for a longer issue.
‘It is, of course, the case that we would like to see a rather lower level of yields at the longer end and that there is, therefore, no pressing need to be in a position of being able to restrain an upward movement in prices should it develop. It is, however, arguable that we are better able to take advantage of suitable opportunities of nudging the market upwards if we are there as dealers than if we are not; and also that to restock our portfolio as part of the process of dealing with a maturing stock is likely to have less of a depressing impact on the market than would restocking it as a separate operation at a later stage when an upward movement in prices had begun to show itself.’
Hollom added the qualification that ‘it would be desirable not to go too long, both for variety and because of the possibility of somewhat lower long-‐term rates.’49 The issue, announced on 17th April, was of £400 million of 5% Exchequer 1976/78, a new stock. It was priced aggressively at 96, and thus represented a further ‘encouragement’ of lower long-‐term interest rates.50 Nevertheless, public applications were as much as £20 million.51 On 19th April, Cairncross had written in an internal Treasury note, with which Goldman had agreed, that ‘I assume that it would still be our position that we did not want to see [long-‐term] rates fall below 5 ½% without further discussion with the Bank.’52 Yields continued to fall until the summer of 1963 (Figure 2). From 19th April to 20th September sales of the 1976/78 stock (including those made at the tender) were £198 million (Table 1, column F), and a further £86 million of the 1965 tap stock was sold. However, there were large purchases of forthcoming maturities (£131 million) and of other stocks and total net sales were just £150 million.
48 Official sales of any gilts would reduce the banks’ liquid asset ratios, but sales to banks would probably reduce them by more than sales to non-‐banks, and banks were more likely to buy shorts than longs. 49 Hollom, ‘Government loan operation’, 29th March 1963, BOE C40/1160. 50 Hollom had recommended 95 1/2, based on the current market yields of comparable stocks. The decision for 96 was made by Goldman and Mynors. Hollom, ‘Government loan operation’, 17th April 1963. 51 Hollom, ‘5% Exchequer Loan 1976/78’, 22nd April 1963, BOE C40/1160. 52 Cairncross – Goldman, ‘Monetary policy and long term rates of interest’, 19th April 1963, NA T326/111.
15
In June and July the debate between the Treasury and the Bank of England became more pointed. Goldman sent to the Bank a paper by Radice, to which he made it clear that the Treasury was not committed, to be discussed at a joint meeting chaired by Sir Denis Rickett. Radice’s paper concluded that ‘any further fall in [long-‐term] rates from the present level would be acceptable only if it came as a result of a strong gilt-‐edged market. It should not be brought about by active encouragement by the authorities’ (rates were then around 5 ¼%), and that active resistance to falling long-‐term rates should begin when they reached 5% or below.53 Maurice Allen, an adviser to Cromer, commenting on Radice’s ‘references to 5% as a point where “active discouragement to the market would be advisable”’, noted that ‘5% is a round figure, but I do not see what other merit it has.’54 At the meeting, Rickett disowned the paper, and asked for it to be rewritten. He and the other Treasury representatives (Cairncross, Goldman, Douglas Allen and Macpherson) wanted to resist any further fall in long-‐term rates at all. A misunderstanding came to light: the Treasury thought that a target of 5 ½% for long-‐term rates had been agreed in March, while the Bank did not. I have found in the archives no official Treasury record of the March meeting which might have prevented the misunderstanding. The Treasury thought that neither ‘external nor home situations warranted the conclusion that any further fall in rates should be tolerated.’ Specifically, the forecast balance of payments deficits were being revised upwards, and any reduction of medium-‐ and long-‐term interest rates, at a time when such rates were rising abroad, would make things worse. Domestically, ‘there was little likelihood of any private investment boom starting up this year and…lower interest rates would not change that prospect’. Finally, ‘Cairncross suggested that there may have been a sizeable speculative element in the recent fall in rates. If the market now wanted to take rates lower it should be protected against itself – the authorities could see dangers ahead which the market did not recognize; in particular, a rise in Bank Rate, likely enough before the year was over, would cause a severe setback in gilt-‐edged.’ The Bank rejected this last point in particular, and commented that the ‘predominating influence on the market was likely to be political uncertainty.’55 Another important misunderstanding, within the Treasury, seems to have been decisive. In a note on banking liquidity of 30th May, Radice had ‘referred to the “present agreed policy of sustaining the long term rate round about its present level.” The Chancellor [Maudling] asked by whom the policy had been agreed.’ Radice’s answer referred to Selwyn Lloyd’s report to Macmillan of the previous July, but added that that there had been a misunderstanding between the Treasury and the Bank about what had been agreed in March. 56
53 ‘Long-‐term rates of interest’, dated 7th June 1963, enclosed with letter from Goldman to O’Brien, 11th June 1963, BOE C42/7. 54 Allen, ‘Long-‐term rates of interest’, 13th June 1963, BOE C42/7. 55 Allen, ‘Meeting at H.M.T., Thursday, 13/vi/63’, 27th June 1963, BOE C42/7. 56 Radice – Goldman, ‘Long term interest rates’, 7th June 1963, NA T326/111.
16
The Treasury, presumably instructed by Maudling, now had second thoughts about long-‐term interest rates. When William Armstrong wrote to Cromer on 18th July, suggesting a further meeting, the revised paper which he enclosed was very similar to Radice’s original paper, which Rickett had disowned at the meeting on 13th June.57 The July version concluded as follows:
‘There is certainly a difference between not resisting a continuation of the present downward trend of rates and actively encouraging a reduction. The net effect of the Bank’s current operations in the market is to discourage too rapid a decline in rates and it seems right that this tactic should continue. Any further fall in rates from the present level would be acceptable only if it came as a result of a strong gilt-‐edged market. It should not be brought about by the authorities. But there may come a point, if the gilt-‐edged market continues strong as it may well do for some time still, when a decision will have to be taken whether to continue with the tactic of passive resistance or whether more active discouragement to the market would be advisable. This point would perhaps come if rates were tending to fall below 5 per cent. A continuation of the fall at that point might carry with it the risk of a reaction with the increase of investment in 1964 which could have damaging effects on the confidence in gilt-‐edged, quite apart from balance of payments considerations. It might further be concluded that, in spite of the need to increase bank liquidity if possible by open-‐market operations, the Bank should not purchase stock on such a scale as might appear to the market to be designed to promote lower long term rates. If prevention of a fall in rates below 5 per cent becomes incompatible with maintenance of sufficient bank liquidity it may be necessary to allow a further fall in the liquidity ratio.’58
Cromer sought a further concession from the Treasury when he replied to Armstrong on 23rd July:
‘There is, I think, no important difference between us as regards policy. In our view too some further fall in the long-‐term rate is likely, and we agree with you that it should be allowed to occur but should not be deliberately promoted. We also agree that some time over the next 18 months the rate can be expected to move upwards…. I would not, however, accept that if rates fell below 5% a change of policy would necessarily be called for. There is no particular significance in any figure and 5% does not emerge from the analysis. In our view, what matters is why and how a certain level of rates is reached and what at that time are the position and prospects at home and abroad. By all means let
57 W. Armstrong – Cromer, 18th July 1963, BOE C42/7, Whittome, untitled, 22nd July 1963, BOE C42/7. 58 Radice, ‘Long term rates of interest’ 12th July 1963, attached to latter dated 18th July 1963 from Armstrong to Cromer, BOE C42/7.
17
us agree to look at the question again, but I suggest that we should not tie ourselves to any particular bench mark. …in our view, the paper seriously over-‐emphasises the part that market tactics have played in bringing about a lower rate over the past months. Tactics have certainly been a contributory factor but the underlying causes were much the more important and the tactics would not have succeeded had these not been favourable… …Subject to these two points, I should be content for the Chancellor to be informed that the Bank were in general agreement with the paper.’59
After this, the meeting itself seems to have been something of a formality. Whittome’s record of it says simply that:
‘At a meeting between the Chancellor and the Governor this afternoon it was agreed that no immediate action was called for on the Treasury’s memorandum on the long term rate of interest but that the position should be looked at again after the holidays.’60
ii. Phase 2: Rising yields, from October 1963. Yields began to rise in October (Figure 2).61 Official sales of gilts stopped and went into reverse. There was a short dated issue (£500 million of 4% Exchequer 1968) on 20th September, but between then and mid–February 1964 net gilt sales were zero (Table 1, column G), partly reflecting purchases of forthcoming maturities and partly the upturn in yields.
There was some discussion about supporting the gilt market when prices were falling. On 6th December, Radice reported a conversation with Hollom about two recent occasions on which the Bank had provided support:
‘On the first occasion when the gilt-‐edged market turned weak jobbers and other professional operators who tend to be temporary holders of gilt edged ready to increase or reduce their holdings with fluctuations in the market, were holding especially large amounts of stock because of the long run of rising yields [presumably Radice meant prices]. At the first break in the market they were quick to unload: a lot of stock came on offer and the Bank took in a lot of what it was offered. On the next occasion, as only a small period had elapsed since the first break, professionals had not acquired any sizeable holdings of stock and had less to unload. The Bank did not have to take in so much. On both occasions the Bank’s tactic was to take in enough stock on offer to preserve an orderly market, but their tactic was not to go out and support the market
59 Cromer – Armstrong, 23rd July 1963, BOE C42/7. 60 Whittome, note for record, 24th July 1963, BOE C42/7. 61 Coincidentally, Macmillan resigned the Prime Ministership on 19th October, on grounds of ill-‐health. He lived for another 23 years.
18
with active buying of stock not offered to them. On both occasions their price tactics were similar, namely that they allowed the market to find its own level on the principle that to do so would provide a better basis from which the market could start moving up again.’62
Treasury officials then considered whether more aggressive resistance to rising yields would be desirable in the future, and whether they were satisfied with the degree of support that the Bank had provided in October and November.63 They do not appear to have asked the Bank to review its tactics; perhaps they were deterred by a historical paper on cheap money policies which included a negative assessment of the attempt to enforce very low gilt-‐edged yields in 1945-‐47.64 On 20th January Hollom mused about a possible new issue. Noting that the Issue Department, though well supplied with short gilts, had very few mediums and longs, he commented internally that:
‘In current market circumstances it may not be essential to replace the existing “tap” stock, for over a period we are perhaps unlikely to be called upon to be heavy net sellers; moreover, a government issue always has some dampening effect on the market. But we have gradually become the linchpin round which the market works. When we are out of the market, particularly in the sense of not having a long or medium stock which we are ready to sell against purchases of shorter-‐dated stocks, then the jobbers are without the reassuring guide to prices and turnover which our activities provide despite the fact that we may be intent on following, not leading, the market. In consequence, the market easily becomes lost and uncertain; momentum may then not readily be regained. If we were without a “tap” stock for a long period the market would in time undoubtedly adjust itself and, though it would be thinner, it would stand more on its own feet. The difficulty is that we do not believe we can afford what might be a long period of re-‐adjustment. Later in the year we are likely to want to be net sellers and we have a long queue of new issues; we therefore do not want ourselves to take any action which might weaken a market that may well be depressed for other reasons.’65
62 Radice – Slater, 6th December 1963, NA T326/215. There were in fact three weeks in which the Issue Department was a net buyer of gilts, excluding forthcoming maturities: the weeks beginning 11th October (£17.8 million), 25th October (£10.2 million) and 8th November (£13.6 million). Source: BOE C11/24. 63 Radice – Goldman, ‘Tactics in gilt-‐edged market’, 9th December 1963, NA T326/215, Slater – Rawlinson and Radice, ‘Policy on the long rate’, 9th December 1963, NA T326/215. 64 Slater, ‘Cheap money policy’, 3rd December 1963, NA T 326/215. 65 Hollom, ‘Loan Programme’, 20th January 1964, BOE C40/1170.
19
Mynors however preferred not to propose a new long issue to the Treasury right away.66 On 6th February Hollom wrote to Radice that:
‘Although 75% of the recently issued L.C.C loan was left with the underwriters, there has been a good turnover and this stock is being steadily absorbed. We have therefore been considering the issue of a new British Government stock to replace 5% Exchequer Stock 1976/78, of which the Issue Department now holds only a very small amount. For some weeks there has been little interest in the long end of the market and it is not likely that this situation will change in the immediate future. On the other hand, something longer than a medium-‐dated issue would give us a stronger and more flexible operating position.’
He proposed £400 million of a 5 ¼% stock 1978/80, to which the Treasury agreed.67 The issue was priced at 96 ½, which was in line with current market yields. Only £1 million was sold at the tender, and the rest was acquired by the Bank. In the prevailing environment of rising yields, it was hard to sell; even by the end of 1964, just £242 million had been sold to the market and £87 million to the National Debt Commissioners.68 Despite this disappointing result, the Bank, discerning demand for longer-‐dated gilts, proposed in April a new 1987/91 stock. By this time, yields had risen substantially since February, and they were ½% or more above the levels of the previous summer, when the Bank had wanted to be able to facilitate further downward movement. At least some Bank officials still opposed the idea of pushing long-‐term interest rates higher: Whittome, for example, attacked the suggestion that ‘the Bank should cause the long-‐term interest rate to rise.’69 But the Bank had put aside its yield objectives, and any associated scruples, in the face of a decisive market movement, and moreover advanced no elaborate arguments related to market structure in proposing the new issue. Hollom wrote to Radice: ‘Although we still hold a substantial amount of the current “Tap” stock, namely, 5 ¼% Funding Loan 1978/80, we now hold little in the way of long-‐dated stocks and if we are to be certain of remaining in a position to control that end of the market we must issue a new stock. We also need to sell stock, preferably long-‐dated.’70 If ‘remaining in control’ meant preventing yields from falling too fast, Hollom need not have worried: they increased a little on balance in the six months remaining before the general election, and this issue, like its predecessor, was hard to sell: by the end of the year, £237 million of the £400
66 Mynors, untitled, 20th January 1964, BOE C40/1170. 67 Hollom – Radice, ‘Government Loan Programme’, 6th February 1964, BOE C40/1170. L.C.C. stands for the now-‐defunct London County Council. 68 BOE C11/25, 26. 69 Whittome, untitled, 22nd April 1964, BOE C42/8. 70 Hollom – Radice, ‘Government Loan Programme’, 24th April 1964, BOE C40/1171.
20
million issued had gone into to the market, and a further £68 million to the National Debt Office.71 This was the last issue before Labour’s narrow victory in the General Election of 15th October, which changed the outlook for government debt management profoundly. Long yields increased by about 80 basis points between the end of September 1964 and the end of June 1965.
3. The maturity structure of the debt There is little sign in the archives of any systematic discussion of the maturity structure of the outstanding government debt. The main concerns were with yields and with managing flows: dealing with upcoming maturities and keeping the Issue Department’s portfolio in a condition to enable it to meet anticipated demand for gilts. In fact the maturity structure of the stock of gilts appeared from summary statistics to shorten considerably in the two years 1962-‐64 (Table 2). The increase in the percentage of under 5-‐year gilts was partly the consequence of the very large 2 ½% Savings 1964/67 and 3% Funding 1966/68 (£1.3 billion in total) moving from the 5 – 15 year bracket into the up-‐to-‐5 year bracket, but the shortening of these and other issues with the passage of time was not offset by longer new issues.
4. Conclusions
What was the long-‐term interest rate policy? For the Bank of England, it was a matter of adjusting a complicated constellation of market tactics so as to nudge long rates inconspicuously down. For the Treasury, it was more about target levels, though the Treasury acknowledged that the targets might not be achieved. The gap between the two conceptions was never bridged, owing to poor communication. It is not possible to estimate with any confidence what difference the policy made to the quantity and maturity of net gilt sales, nor, a fortiori, to estimate what effect, if any, it had on long-‐term interest rates. It might be supposed that if the Bank had been less generous in the terms that it offered for switches into tap stocks in the period up to October 1962, then tap sales might have been lower in that period, but total net sales might have been higher. Long-‐term interest rates might have been higher; as it was, they followed a path roughly parallel to that of short-‐term rates (Figure 2), which were certainly not influenced by the long rate policy. Nevertheless the attempt to influence long rates downwards can only have made the government's debt shorter in average maturity than it otherwise would have been, in other words to reinforce the shortening brought about by the passage of time. In the light of the inflationary excesses that were to follow, this was regrettable from the financial standpoint of the government, though by the same token it reduced the extent to which bond holders were expropriated by later inflation. The Bank of England’s embrace of a more expansionary policy than Treasury
71 BOE C11/25, 26.
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officials regarded as prudent had the interesting effect that, when the Treasury officials were overruled by an expansion-‐minded Chancellor, there was nobody left to argue the case for conservatism. It is easy to criticise the policy. The Radcliffe committee had tacitly assumed that the authorities would know better than the market what the proper level of long-‐term interest rates was; and this was automatically also assumed in the implementation of Radcliffe’s recommendation. However, there was not much reason to think that the assumption was warranted: as Maurice Allen pointed out at the time, the suggested levels towards which long rates were to be nudged or directed (according to one’s conception of the policy) did not emerge from any systematic analysis, but from a fairly casual comparison with historical levels, with rough adjustments to allow for expected demand for investment funds. The Treasury’s concerns about the balance of payments effects of the policy were too easily put aside. The main shortcoming of the Radcliffe’s committee’s recommendation was that it massively underestimated the significance of inflationary expectations. By the late 1950s, particularly after the appearance of the Phillips curve (1958), the rate of inflation had become a policy choice, to be traded off consciously against unemployment, and was therefore subject to periodic change as political preferences changed. Inflationary expectations could not be expected to remain stable, and any policy aimed at a particular level of long-‐term bond yields was likely to be undermined when they changed. However, inflationary expectations were not evidently volatile in 1962 – 63, when the long-‐term interest rate policy was pursued, and the policy was promptly abandoned in 1964 when they showed signs of increasing. Capie (2010, p 285) comments that ‘It is not difficult to see how the markets had a problem understanding the Bank’s actions’; there were several misunderstandings, but they were within the government, not between the government and the market, and in any case these were not the main failings. Despite its obvious shortcomings, the policy was not without merit or interest. The Bank of England’s triple role in the gilt market as issuing agent, underwriter and leading market maker was both unavoidable and unavoidably complicated; and the long rate policy of 1962-‐64 at least acknowledged the complications and tried to manage them rationally. It was unfortunate that the formulation of the policy, like Radcliffe’s recommendation, was poorly conceived.
22
Cast of characters Allen, Douglas, Under secretary, H.M. Treasury 1960-‐62, Third Secretary in charge of National Economy division 1962-‐64. Allen, Maurice, Adviser to the Governor of the Bank of England 1954-‐64. Armstrong, Robert, H.M. Treasury official, had been secretary of the Radcliffe Committee. Armstrong, William, Third secretary in charge of Home Finance division 1958-‐62, joint Permanent Secretary 1962-‐68. Bligh, Tim, Private Secretary to the Prime Minister. Cairncross, Alec, Economic Adviser to the Government, 1961–64. Cromer, Lord Rowley, Governor of the Bank of England 1961-‐66. Fforde, John, Adviser to the Governor of the Bank of England Goldman, Samuel, under secretary, H.M. Treasury, 1960; third secretary in charge of Home Finance division and domestic and external aspects of the monetary and credit system from October 1962 Hollom, Jasper, Chief Cashier, Bank of England, 1962–66, responsible for gilt-‐edged operations. Lee, Sir Frank, Joint Permanent Secretary to the Treasury 1960-‐62, when he retired after a heart attack. Lloyd, Selwyn, Chancellor of the Exchequer, until 13th July 1962. Macmillan, Harold, Prime Minister 1957–63. Maudling, Reginald, Chancellor of the Exchequer from 13th July 1962 Mynors, Humphrey, Deputy Governor, Bank of England, 1954-‐64. Padmore, Thomas, Second Secretary, H.M. Treasury, 1952-‐62. Radice, I de L, Treasury official responsible for liaison with Bank of England. Rickett, Dennis, second secretary, H.M. Treasury, in charge of Overseas Finance division 1958-‐68. Whittome, Alan, Deputy Chief Cashier, Bank of England.
23
References Archives Bank of England Archive (BOE) National Archives (NA) Published sources
Allen, W.A. (2014), Monetary policy and financial repression in Britain, 1951-‐59, Palgrave Macmillan.
Attard, B. (1994) 'The jobbers of the London Stock Exchange: an oral history', Oral History (Spring, pp 43-‐48).
Attard, B. (2000), 'Making a market. The jobbers of the London Stock Exchange, 1800-‐1986', Financial History Review, 7 (2000), 5-‐24.
Bank of England (1962a), Quarterly Bulletin Bank of England (1962b), Quarterly Bulletin Bank of England (1963a), Quarterly Bulletin Capie, F. (2010), The Bank of England 1950s to 1979, Cambridge University Press. Dell, E. (1997), The Chancellors, Harper Collins Centre for Metropolitan History, Institute of Historical Research, ‘The jobbing system of the London Stock Exchange: an oral history’, http://www.history.ac.uk/projects/research/jobbing . Holtfrerich, C.-‐L. (1999), ‘Monetary policy under fixed exchange rates (1948 – 70)’ in Deutsche Bundesbank, Fifty years of the Deutsche Mark, Oxford University Press. Horne, A. (1989), Macmillan 1957 – 1986, Macmillan. Howson, S. (1993), British monetary policy 1945 – 51, Oxford University Press. Lamb, R. (1995), The Macmillan years 1957 – 1963: the emerging truth, John Murray. Macmillan, H. (1973), At the end of the day, Macmillan. Michie, R.C. (1998), The London Stock Exchange: a history, Oxford University Press.
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Morgan, E.V. and W.A. Thomas (1962), The Stock Exchange: its history and functions, Elek Books. Pember and Boyle (1976), British government securities in the twentieth century: supplement 1950 – 76. Privately published. Phillips, A. W. (1958), ‘The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–1957’, Economica, vol. 25, no. 100 (November). Radcliffe (1959), Report of the Committee on the Working of the Monetary System, HMSO Cmnd 827. Swanson, E. (2011), ‘Let’s Twist again: a high-‐frequency event-‐study analysis of Operation Twist and its implications for QE2’, Federal Reserve Bank of San Francisco Working Paper 2011-‐08. Thorpe, D.R. (2011), Supermac: the life of Harold Macmillan, Pimlico Press. Wormell, J, (1999), The management of the national debt of the United Kingdom 1900 – 1932, Routledge.
25
Figure 1
2.7800
2.7900
2.8000
2.8100
2.8200
2.8300
2.8400
2.8500
2.8600
-‐8.00
-‐6.00
-‐4.00
-‐2.00
0.00
2.00
4.00
6.00
8.00
Jan-‐60 Jan-‐61 Jan-‐62 Jan-‐63 Jan-‐64
Bank rate and the exchange rate 1960 -‐ 64 (%)
Bank Rate (LHS) £/$ exchange rate (RHS)
26
Figure 2
0
1
2
3
4
5
6
7
8
Jul-‐61
Sep-‐61
Nov-‐61
Jan-‐62
Mar-‐62
May-‐62
Jul-‐62
Sep-‐62
Nov-‐62
Jan-‐63
Mar-‐63
May-‐63
Jul-‐63
Sep-‐63
Nov-‐63
Jan-‐64
Mar-‐64
May-‐64
Jul-‐64
Sep-‐64
Nov-‐64
Gilt yields and Bank rate 1961 -‐ 64 (%)
Short Medium
Long Yield on UK 3 1/2% War Loan
Bank rate
27
Table 1
Official gilt operations, May 1962 – December 1964 (£ million, nominal)
A B C D E F G H
4 May - 14 Jun 1962
15 Jun - 29 Aug 1962
30 Aug - 18 Oct 1962
19 Oct 1962 -2 Jan 1963
3 Jan - 17 Apr 1963
18 Apr - 19 Sep 1963
20 Sep 1963 - 13 Feb 1964
14 Feb - 31 Dec 1964
Total net sales 90 193 174 9 -244 150 0 63
Maturities in next 9 months -56 -63 -158 -111 -260 -131 -120 -489 Maturities > 9 m up to end of 1968 30 73 178 48 9 53 65 242 Tap sales (1) 0 289 247 15 67 86 141 227 Other sales 30 -216 -69 33 -59 -34 -76 15 Maturities 1969 - 1973 102 -15 -58 19 -8 21 -12 -49 Tap sales (1) 0 0 0 0 0 0 0 0 Other sales 102 -15 -58 19 -8 21 -12 -49 Maturities 1974 - 1983 12 -34 -116 -14 9 188 71 156 Tap sales (1) 0 0 0 0 0 198 95 243 Other sales 12 -34 -116 -14 9 -10 -24 -87 Maturities > 1983 1 232 328 66 7 19 -4 203 Tap sales (1) 1 269 476 0 0 0 0 239 Other sales 0 -37 -149 66 7 19 -4 -36
Net sales ex upcoming maturities 146 256 332 119 16 281 120 552 Tap sales (including at tenders) 1 558 724 15 67 285 236 709 Other sales 145 -302 -392 104 -51 -4 -116 -157
Note (1) including at tenders
28
Table 2
Gilt-‐edged securities outstanding, 1962 -‐ 64 (£ billion)
31-‐Mar
Up to 5 years
5 -‐ 15 years
15 -‐ 25 years
Over 25 years and undated Total gilts
1962 3.5 5.3 1.3 5.0 15.1
23.1 34.9 8.9 33.1
1963 4.7 4.7 1.1 5.6 16.1
29.2 29.1 7.0 34.7
1964 5.1 4.2 2.2 4.7 16.2
31.5 26.0 13.5 29.0
Notes (1) Excluding holdings of National Debt Commissioners but including holdings of
other public sector bodies. Figures in italics show percentage of total gilts in each maturity bracket. Source: Pember and Boyle (1976)
