U.K. Govt. Renews Credit Squeeze

Press, Volume CIV, Issue 30739, 1 May 1965, Page 15

U.K. Govt. Renews Credit Squeeze

(N.Z.P.A.-Reuter —Copyright) LONDON, April 30.

The British Government yesterday imposed a new credit squeeze by freezing £9O million in bank funds to restrict loans.

The news was received a few minutes after the Bank of England had announced that the bank rate—the official key to interest on borrowed money—would be retained at the high level of 7 per cent fixed last November. There had been speculation that because of the improved strength of sterling in the foreign exchange market, the rate would be lowered to make borrowing by industry easier. Instead the Bank of England announced that with the approval of the Chancellor of the Exchequer a new credit squeeze would come into operation.

All banks in England would be instructed to place on special deposit with the Bank of England 1 per cent of their available funds. Scottish banks will be instructed to deposit J per cent. Half the deposit must be made by May 19 and the balance by June 16. The special deposits system was devised in July, 1958, to reduce the amount of money in the banks as a means of inducing them to restrict loans to their customers. The special deposits paid into the Bank of England cannot be withdrawn.