Table Of ContentMonetary Policy and Financial Repression in Britain,
1951–59
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Basingstoke, Hampshire RG21 6XS, England
Monetary Policy and
Financial Repression
in Britain, 1951–59
William A. Allen
Visiting Senior Fellow, Cass Business School, London, UK
© William A. Allen 2014
Softcover reprint of the hardcover 1st edition 2014 978-1-137-38381-5
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Contents
List of Figures and Tables viii
Preface xi
1 Introduction 1
2 1945–51: Labour’s Macro-Economic Policies 3
2.1 The state of the economy and the financial
system 3
2.2 Monetary policy 6
3 1951–52: The Reactivation of Monetary Policy 19
3.1 The change of government 19
3.2 Conservative fiscal policy 21
3.3 How monetary policy was reactivated 21
3.4 Academic reaction 31
3.5 Reactivation of British monetary policy and
the ‘accord’ in the U.S.A. 31
4 1952–54: Years of Growth 36
4.1 Why external pressures eased? 36
4.2 The debate on the effects of policy tightening 39
4.3 The recovery of 1953–54 42
5 Moves towards Convertibility and Their Implications
for Monetary Policy 44
6 Short-term Interest Rates in Late 1952 to Mid-1954 48
6.1 Two rate cuts 48
6.2 Afterthoughts 51
7 Government Debt Management 1952–54 55
7.1 The government’s financing needs 55
7.2 Rolling over Serial Funding 55
7.3 Market conditions improve 58
7.4 Assessment 61
8 The Debacle of 1955 64
8.1 Changing market conditions, late 1954 to March 1955 64
8.2 Two budgets and a credit squeeze 73
v
vi Contents
8.3 The Tuke affair 85
8.4 The immediate effects of the credit squeeze 86
9 1956: Macmillan as Chancellor 93
9.1 Late 1955 to Spring 1956 93
9.2 The review of monetary organisation 100
9.3 The Suez crisis 109
10 1957: The Year of Thorneycroft 114
10.1 Recovery from the Suez crisis 114
10.2 The Budget and phase 1 of the struggle over
monetary policy 116
10.3 Reserve losses, phase 2 of the struggle over monetary
policy and the 7% Bank rate 122
10.4 The working group on credit control and
the a ftermath of the struggle 132
11 1958: The Sunny Uplands 141
11.1 Getting Bank rate down to 5% 141
11.2 The end of the advances ceiling and the introduction
of the Special Deposits scheme 147
11.3 Getting Bank rate down to 4%, and Operation
Unicorn 150
12 1959: Here We Go Again 157
12.1 Contemporary theories of inflation 157
12.2 The Prime Minister, the 1959 election and
economic policy 158
12.3 The weakening of sterling and the beginning of a
new cycle 165
13 Monetary Policy Techniques 172
13.1 Bank rate 172
13.2 Operations in bills 172
13.3 Operations in bonds 174
13.4 Foreign exchange and gold operations 177
14 Financial Repression 181
14.1 Definition of financial repression 181
14.2 Financial repression in Britain in the 1950s 182
14.3 Moral suasion, or ‘ear stroking’ 184
14.4 The effects and limits of financial repression 186
15 Management and Communication of Monetary Policy 194
15.1 Power and influence 194
15.2 Cobbold and his advisers 202
15.3 Communication 205
Contents vii
16 An Assessment of Monetary Policy 218
16.1 Excess demand, inflation and inflationary
expectations 218
16.2 Criticisms of monetary policy 219
16.3 Fiscal dominance 224
16.4 The Radcliffe report 228
16.5 Was there a better way? 231
16.6 The expansionism of 1959 233
17 Epilogue: The Next Reactivation of Monetary Policy 236
Appendix A Macroeconomic and Financial Data 243
Appendix B ‘Above the Line’ and ‘Below the Line’ in the
Exchequer Accounts 255
Appendix C Clause 4(3) of the Bank of England Act 1946 257
Appendix D The Unification of Transferable Sterling: March 1954 258
Appendix E C obbold’s ‘Random Thoughts’ 261
References 265
Index 271
List of Figures and Tables
Figures
2.1 Net official sales of gilts, 1945–51 (£ millions) 8
2.2 Gilt yields 1945–47 (%) 9
4.1 Sterling/dollar exchange rate and official foreign
exchange o perations, January–December 1952 37
4.2 U.K. and U.S. treasury bill rates, 1951–54 (%) 38
7.1 Net official gilt sales, ex forthcoming maturities,
January 1951–June 1954 (monthly, £, nominal) 57
7.2 London clearing banks’ liquid asset ratio,
1952–54 (%) 57
8.1 Sterling/dollar exchange rate and official foreign
operations, September 1954–February 1955 65
8.2 Net official gilt sales, ex forthcoming maturities,
June 1954–October 1955 (weekly, £, nominal) 66
8.3 U.K. long-term interest rates, 1800–1961 (%) 66
9.1 Net official gilt sales, ex forthcoming maturities,
November 1955–August 1957 (weekly, £, nominal) 98
10.1 Sterling/dollar exchange rate and official foreign
exchange operations, August–December 1957 123
11.1 Short-term interest rates in the U.K., the U.S.A
and Germany, 1957–58 142
11.2 Sterling/dollar exchange rate and official foreign
exchange operations, January–June 1958 142
11.3 Net official gilt sales, ex forthcoming maturities,
September 1957–December 1958 (weekly, £, nominal) 144
11.4 London clearing banks’ assets, 1957–61 (million) 150
12.1 Net official gilt sales, ex forthcoming maturities,
January–December 1959 (weekly, £, nominal) 163
12.2 Short-term interest rates in the U.K., the U.S.A.
and Germany, 1959 167
viii
List of Figures and Tables ix
12.3 Sterling/dollar exchange rate and official foreign
exchange operations, November–December 1959 167
13.1 Issue department net gilt sales (£, nominal) and yield
changes (%), monthly, 1951–54 176
14.1 Total assets of U.K. financial institutions 1950–60
(£ million, as on 31st December) 188
14.2 Transferable sterling: discount against official rate and
official intervention 191
14.3 U.K. and U.S. Treasury bill rates, 1951–59 192
16.1 U.K. and U.S. long-term government bond yields, 1953–59 220
A1 U.K. reserves, 1949–59 (£ million) 250
A2 UK public finances (modern definitions),
1950/51–1960/61 (% of GDP) 251
A3 Retail price index, 1951–61 (% change on a year earlier) 252
A4 M3 and advances growth (% change on a year earlier) 252
A5 Gilt yields, 1951–61 (%) 253
A6 Quarterly GDP growth, and its demand components,
1956Q2–1959Q4 (% change on previous quarter,
seasonally adjusted) 253
A7 Bank rate and Treasury bill rates, and the exchange rate,
1951–59 (%) 254
Tables
2.1 Labour’s fiscal policy, 1945–51 (£ million, % of GDP
in brackets) 4
2.2 Estimated distribution of the national debt and nationalised
industries’ loans guaranteed by H.M. Government, as on
31st March 1951 (£ million, nominal) 7
3.1 Reserves and external sterling liabilities, 1951–52 22
6.1 Money market rate structures, 1951–54 49
7.1 Maturity distribution of gilts, including
government-guaranteed stocks, 1951–55
(£ millions, % in italics) 56
8.1 London clearing banks advances, commercial bill
holdings and deposits, 1955 (£ millions) 76
