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Chapter I. The Home Economy

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  • Anonymous

Abstract

The decision to join the exchange-rate mechanism had been expected, with increasing confidence, for several years. Nevertheless the actual announcement on 5th October came as something of a surprise. Up to that point the authorities, both the Bank of England and the Treasury, had been encouraging the view that interest rates should be kept high for the foreseeable future so as to cut back the growth of domestic demand and to curb inflation. Joining the ERM implies that interest rates must be set mainly with a view to the foreign exchange market and are no longer fully available as an instrument to control the domestic economy. The decision to join the ERM in October, and the associated 1 percentage point cut in interest rates were probably the result of a reassessment of the state of the economy—as well as being a move in the complex game of European and domestic politics.

Suggested Citation

  • Anonymous, 1990. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 134, pages 7-21, November.
    • Handle: RePEc:cup:nierev:v:134:y:1990:i::p:7-21_2
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