Credit squeeze; higher interest in Britain

Press, 10 June 1978, Page 19

Credit squeeze; higher interest in Britain

NZPA-Reuter London I 1 he Bank of England has raised its minimum lending rate 1 per cent to 10 per cent, making it the highest ’ rate since March, 1977. • I* 16 , British Government nas adopted a series of restrictive financial measures. As well as lifting the bank rate, it has paved the wav for a credit squeeze by compelling any commercial' nanks which increased their lending above a certain level with °i 8e D special deposits with the Bank of England reviving a Penalty dropped in August, 1977. ■ In a move aimed at easing: the pressure on sterling oni yl re ign exchange markets, and restoring confidence on: ?£ n £ st,c money markets.' tl}e Government has also imposed a 2.5 per cent increase, m employers’ National insurance contributions. •One increase in employers' contributions wil 1 on a bl e 1

■ Britains’ minority Labour I ■Government to recoup revenue lost from recent taxi benefits voted through by . the opposition. The Treasury said that the I i increase in contributions wat set at SBSOOM in the the public sector borrowing 1 requirement for 1978, which: was set at SBSOOM in April 11 Budget. The size of the Budget deficit led to fears in “The! jCity” that the Government I would not be able to stick ! • to its target of restricting I the growth of the money I • supply to between eight and! 12 per cent this year. The growth in" money sup-1 ply is taken as a key indie-} iator of the likely rate of in-1 I flation, now running at an j annual 7.9 per cent in Brit-1 ;ain. The expected growth ofj the money supply had led to i a virtual drying up of de-1 ' mand for Government bonds, I which finances much of the! Budget deficit. • Sterling rose slightly on I

’the London foreign exchange; market after the announce-! ( ment, edging up to! SUS 1.8265 from .$1.8244 be-; fore the news of the finan-j icial package. Government bonds were sharply higher in active buying on the domestic money market after the credit-curb-ing measures had been spelt out. Anticipating the Govern- ; ■ ment’s decisions, the “Daily! Telegraph” said in its business editorial that the Chan-’ Icellor of the Exchequer was! : reluctant to adopt the meas- } I ures because they implied( (that the April Budget calculations had been wrong. ! A General Election is ex- i peered this year, and the : ' measures to trigger off a ; ’credit squeeze, and higher! !charges on house purchase! •loans are likely to count} I against the Government.