FINANCE AND INVESTMENT
THESE are shadow markets in the City, but who can fail to be impressed by the smoothness of the transition to condi- tions of war? Every market is working under some form of control and regulation, and many good City livelihoods have unhappily disappeared overnight, but the nation's financial machinery is still functioning. In Lombard Street, indeed, credit conditions have already become more com- fortable, which suggests that there should be no difficulty for the Government in borrowing on Treasury bills on reasonably economical terms. Stock Exchange business is difficult, but is gradually broadening out, justifying the hope that dealings will get freer within the next few weeks. That will be helpful to the Government's long-term borrow- ing programme, the first instalment of which may probably be expected in the late autumn.
Meantime, the actual behaviour of security prices has been by no means dismaying. Gilt-edged have bedded down at the official minima—which imply a long-term interest rate of roughly 4 per cent.—and in the other markets sharp falls in some o have been matched by equally sharp rises in others. At this stage it is obviously impossible to assess earnings prospects with anything like confidence. Nobody knows yet how great is the risk of physical damage to industrial equipment, how many companies stand in re- lation to adequate supplies of labour and raw materials, how wage rates are likely to move, what sort of dividend policy various boards of directors will adopt, or the contents of the Chancellor's promised special Budget. It is clear enough, however, that heavier taxation, both direct and indirect, is in store, and that we must be prepared for some very cautious dividend decisions.
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