City and
Chatty Old Lady
rr he sterling markets — money, Govern- ment ment stock, the pound itself wandered Wordsworthianly about last month, like a cloud looking for a moun- tain. Markets in that mood have a way of finding what they are looking for. So now: this week's updraught and downpour come from a jagged protuberance of the money supply. This, on the familiar measure called M3, is supposed to be growing at an average rate of eight per cent a year, give or take two per cent. It now seems to have taken an extra two per cent in a month. The City prognosticators are dumbfounded, and search for explanations among the Bank of England's seasonal adjustments to the figures. The Bank's chief monetary economist, the sardonic Charles Goodhart, has been heard to remark that seasonal adjustment is the last refuge of a scoundrel, but this may not be the moment to say so. It is barely a fortnight since the Bank was tell- ing the world, in so many words, that there was no domestic reason why short-term interest rates should rise. No doubt, no doubt, but that scarcely suggested that a two per cent jump in the money supply was round the corner. The attempt to talk in- terest rates down only succeeded in talking the pound down — which, in turn, forced interest rates up. It will be a long time before the Bank tries the gambit again. Much better the familiar style, of poker- faced observation mitigated by potent nods and winks, of communication through the language of the markets, where what the Bank wants can be inferred from what it does. The Old Lady (it is an article of the City's faith) knows more than she says. This time she said more than she knew. I should not like to be the man who put this suggestion past the Governor. He can ex- pect to be seconded to the central monetary authority of the Falkland Islands — or, perhaps, to be asked to stay in the west end of town and, another time, do his own dirty work.
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