BANK OF ENGLAND REPORT FOR THE YEAR ENDED 28th FEBRUARY 1961 Issued by Order 0/ the Court 0/ Directors, 29(h lime 196 1. COURT OF DIRECTORS FOR THE YEAR ENDED 28TH FEBRUARY 1961. THE RT. HON. LORD COBBOLD. P.C., GOVERNOR.. HUMPHREY CHARLES BASKERVILLE MYNORS. ESQ., DEPUTY GOVERNOR. SIR GEORGE EDMOND BRACKENBURY ABELL. K.C.I.B., O.B.E. THE RT. HON. LORD BICESTER. SIR GEORGE LEWIS FRENCH BOLTON. K.C.M.O. *LAURENCE JOHN CADBURY. ESQ., 0.8.E. tTHE RT. HON. THE EARL OF CROMER. M.B.B. GEOFFREY CECIL RYVES ELEY, ESQ., C.B.E. SIR CHARLES IOCELYN HAMBRO, K.B.E., M.C. SIR JOHN COLDBROOK HANBURY·WILLIAMS. C.V.O. SIR FRANK CYRIL HAWKER. WILLIAM JOHNSTON KESWICK. ESQ. THE RT. HON. LORD KINDERSLEY, C.B.E., M.C. MAURICE HENRY PARSONS. ESQ. SIR WILLIAM HENRY PILKINGTON. SIR ALFRED ROBERTS. C.B.E., J.P. THB RT. HON. LORD SANDERSON OF AYOT, M.C. MICHAEL JAMES BABlNGTON SMITH, ESQ., C.B.E. JOHN MELIOR STEVENS. ESQ., D.S.O., O.B.E. • Resigned. 23rd January 1961. t Appointed, 23rd January 1961. The term of office of Lord Sanderson of Ayot. Mr. M. J. Babington Smith. Mr. M. H. Parsons and Mr. J. M. Stevens expired on the 28th February 1961 and they were reappointed for a period of four years. It was announced in November 1960 that Lord Cobbold would relinquish the office of Governor on the 30th June 1961 and would be succeeded by the Earl of Cromer. BANK OF ENGLAND Report for the year ended 28th February 1961. A Commentary covering the period April avoided and that within the field of fixed 1960 to Marcb 1961 has been included in the investment the very rapid growtb in house and Quarterly Bulletins published by the Bank of commercial building. as opposed to industrial England since the issue of the Bank's last building. should be moderated. The net effect Annual Report. A review of the year ended of the budget proposals announced in April 28tb February 1961 cannot avoid some duplica­ was to increase tax revenues, beyond the tion of what has already been published. To expected increase at existing tax rates, by a minimise this, comment in tbe present Report small amount, though leaving the estimated has been confined to the more important events overall budget deficit for 1960/61 little changed of the year with, in addition. some discussion from that realised in the previous year. At of changes that are more easily considered at the same time certain measures to encourage longer than quarterly intervals. National Savings were introduced. The The year 1960 began with the prospect that Chancellor of the Exchequer also stated that total demand in the United Kingdom would he thought it likely that- rise faster than could immediately be met by " ... the time may soon arrive wh en it would domestic production. Private capital expendi­ be right that we should take other steps to ture and the rate of stock accumulation were restrain further expansion of private credit ..." rising; the trend of incomes and the range of Later in that month controls over hire consumer credit facilities then available made purchase terms were reintroduced aDd the it appear that consumers' spending. which had system of Special Deposits was brought into already risen notably, would continue to use for the firs t time. In June Bank Rate was increase. To limit the adverse effect of these increased from 5% to 6%, a fu rther call was developments upon the balance of payments on made for Special Deposits and the Chancellor current account and upon the stability of announced that the Government had decided to domestic prices, and to encourage conditions hold capital expenditure in the pubHc sector in which an orderly growth of capital expendi­ during 196 1/62 at the level planned fo r the ture could be sustained, successive measures financial year 1960/61. to reduce the pressure on resources were taken. Moreover, there was a gradual rise in long The first, and early, step was an increase of and medium-term interest rates until August. Bank Rate, from 4% to 5%, in January 1960; Initially, the authorities were net purchasers other measures. fiscal and monetary. followed of a considerable amount of gilt-edged stock during the next balf-year. but in the quarter ending in June the It was desirable that restrictive measures demand fo r gilt-edged greatly strengthened. taken should fall most heavily on consumers' The authorities became ready sellers and con­ expenditure so that exports and home invest­ tinued as such until early in 196 1. Long-term ment in manufacturing industry should not be interest rates decreased slightly during the held back by an avoidable shortage of resources, autumn but. resuming their increase at the notably of labour. In addition it was desirable end of November, later more than reversed that the rise in imports of consumer goods this fall. The gross yield on 2!% Consols, for ~ houJd be reduced. that an unduly large increase example, rose from 5"3\% at the end of 10 stocks of industrial materials should be February 1960 to 5#% at the end of July and to 5i% at the end of February 1961. purchase controls and the restraints on lending Though the authorities' purchases moderated by the banks had a direct and discernible effect. the initial rise in interest rates, it was con­ In addition, there were signs by at least late sidered that a rise in long-term interest rates autumn that not only imports of finished manu­ would help to reinforce the other restrictions factures for the consumers' market but also on the credit system; aod, in view of market imports of industrial materials for stock accu­ conditions, the establishment of a somewhat mulation were levelling off. However, the lower level of gilt-edged prices was needed if growth in productive investment and in exports official sales were to be resumed. went only a little way towards the achievement of levels that could be considered adequate in Prices of industrial ordinary shares tended, view of the future needs of the economy. 011 balance, to rise until early in September 1960, the Actuaries' Investment Index rising During the calendar year 1960 manufac­ from 186·0 at the end of February to 188·5 turers' stocks increased in volume by 10% at the end of August. During this period, compared with an increase of 1 % during 1959. however. there were two declines. one after when the increase was low in relation to the the Chancellor's warning, in his budget speech, growth of industrial production. The rise in of possible credit restrictions and the other in stocks in 1960 was an important direct cause the second half of June when there were of the rise in imports. Total stocks continued fears that further restrictions might be imposed. to rise in the December quarter and this may From September until early in December suggest that the measures taken during the year adverse news about the U.K. balance of pay­ failed to achieve one of their objectives. Never­ ments, combined with the difficulties of indus­ theless, an analysis of the available evidence tries affected by the hire purchase controls shows that in the same quarter the rise in manu­ and the weakness of Wall Street. brought a facturers' stocks of materials and fuel, allowing fall in prices. Over the last three months of as far as one can for seasonal factors. was the period, however, more optimistic views on markedly lower than it had been during the the future course of the economy predominated previous quarters of the year. The continued and, with a rise on Wall Street, prices rose growth in stocks seems to have reflected mainly steadily, the Actuaries' Investment Index mov­ an accumulation of finished goods and some ing from 179·7 at the end of November to increase in work in progress; both of these 198·6 at the end of February 1961. were partly involuntary rises resulting from the fall in home and export demand in certain By the autumn the composition of the in­ crease in demand was greatly changed: con­ industries. The changed composition of the sumers' spending had flattened out but capital increase in stocks was less expensive in tenns of imports and suggested that a fall in total expenditure. particularly that of manufacturing expenditure on stocks might be near at hand. industry, was still showing a welcome rise. Preliminary evidence shows that this may have Exports, after a sharp fall during the summer, begun in the early months of 1961. were again beginning to rise. These develop­ ments were accompanied by a change in the During 1960 there was a small decrease in pattern of bank lending away from the cate­ the number of houses started compared with gories of borrowers most closely concerned 1959 though by early 1961 there were some with consumer credit and towards those most signs that this trend might be reversed shortly. concerned with industry; the analysis of New orders for industrial building obtained advances by members of the British Bankers' by contractors rose substantially during the Association shows that during the year ended year. mid -February 1961 the largest increases were in the amounts lent to borrowers connected Most of these were changes in the right with engineering and heavy industry. direction, though their extent and indeed the degree to which they could be carried might The redirection of output towards fixed reasonably be matters on which opinion dif­ capital formation.