CITY AND SUBURBAN
Money is blown off course, and sterling catches the breeze
CHRISTOPHER FILDES
Markets always tell a story, and we must not complain when the story is comical. So now with sterling, the index of the Government's and the nation's credit. First the Government comes a purler in a rural by-election (I think in my citified and suburbanite way, that this may have had something to do with the Government's Brussels-inspired demolition job on dairy farming, rather than cuts or consolidation, but we all carry our prejudices about with us.) Then come the figures for the money supply, the fixed point of reference for economic management these last six years. They are terrible. Taken at their face value, they suggest that the Treasury is off course and the Bank of England has lost control, that we are storing up inflation for the future — in other words, that the value of the pound will depreciate. So what does the pound do? It goes through the roof. At four marks to the pound, alarm bells ring at Millbank and the ICI lobbyists march down the road, to ask the Chancellor why he is running his policy to favour Bayer and Hoechst. The stock market gets the same message. The chain of reasoning, which leads from bad money-supply figures to high interest rates and thus to a strengthen- ing currency, is obviously twisted, but the Americans have long had to get used to It and no doubt we shall. I have long suspected that the exchange rate is a better indicator of monetary policy than the Official figures are. This increasingly popu- lar theory will now need to be filtered for Wishful thinking. I now offer another, Which is that leading equities have become a fully international market (ICI is more heavily traded in New York than in Lon- don), and that our share prices have been holding remarkably steady all year — in dollar terms.
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