City and Suburban
No soft option
It was Moreland, in Anthony Powell's Music of Time, who succumbed to a fatal attack of nostalgia. So may we all, starting With the stock market. Here, to lead us back down Memory Lane, is the Governor of the Bank of England: 'Those who so readily advocated devaluation before we had made any attempt to apply other correctives had scant regard for our obliga- tions abroad, for the risks entailed for ourselves and others, and for the harsh medicine which must be taken to make devaluation work. All these things are now being made abundantly clear. Those who thought devaluation was a soft option have been disabused.' — Not today's Governor, but Lord O'Brien, 17 years ago, when sterling's 14 per cent decline against the dollar had brought tighter credit, higher taxes, cuts in public spending, and the highest Bank rate since the first world war broke out — 8 per cent! This time it took sterling a couple of months to repeat the Slide, but at the bottom of it we seem to find ourselves once more in that grey world Where sterling must fight defensive battles against unseen hordes. The Chancellor in the Commons this week refused to com- ment on market tactics, which, he said, could be of interest only to the speculators • . In this financial Waterloo it is hard Pounding, as Harold Wilson said — some Way after Wellington: hard pounding, and tightened belts. Those who thought that devaluation was a soft option have been disabused all over again. In the stock market, how instructive that, when Bank rate was hoisted to 12 per cent, shares soared on up past 1,000 on the FT Index — but the jump to 14 per cent knocked shares all the way back again, and beyond. The first time, the stock market didn't believe II. This was just the Chancellor and the Governor making fieree faces to frighten the children on the foreign exchanges. Now the stock market believes it all right. That is just as well, for markets are not watertight compartments, and the sooner that belief spreads to the foreign ex- changes, the sooner the children believe that the uncles are serious about sterling, the sooner its fortunes can start to mend. The. money market this week has come to believe that 14 per cent is the top. That is entirely different from saying that interest rates can at once come rattling down again. TIIF uncles will not soon resume their usual smiling faces. Their scared expression is entirely genuine. They will take no more chances with sterling, they have to show the exchanges that the pound is not a one-way bet, and that is the indicator we should watch.
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