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Bank Rate Reduction

Volume 527: debated on Tuesday 18 May 1954

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asked the Chancellor of the Exchequer the reasons for reducing the Bank rate from 3½per cent, to 3 per cent.

The Bank of England took the view that this change was appropriate in present market conditions. I was, of course, consulted and concurred.

Was it the inflow of foreign temporary money into this country—the "hot money"—that caused the decision that has been taken? If so, can the Chancellor say to what extent that foreign "hot money" has been coming into the country over the past six months?

I have already answered this question once in debate, when I said that the greater part of the marked improvement in our reserves has been due to normal factors, and due to an increased confidence in sterling, which I think alt sections of the House would welcome at the present time. I said further that there had recently been a speculative element. My hon. Friend asked whether the Bank rate was changed specifically for that reason. The reason why it was changed, among others, was that money rates had eased in various centres since the last reduction in the Bank rate. This was one of the factors that were taken into account.

The local authorities are very anxious to know whether this reduction in the Bank rate will be reflected in the Public Works Loan Board's rates. Can the right hon. Gentleman give us any information about that?

Those rates are not governed by the Bank rate but are based on the general level of Government credit from time to time for loans for comparable periods. Therefore, I shall keep a watch on that matter.

Is the right hon. Gentleman aware that when he first raised the Bank rate the building societies automatically raised their mortgage interest charges, and that although there have been two reductions in the Bank rate they have not followed the right hon. Gentleman's example? Will he do something about that?

Developments in that direction will depend upon movements in the market and upon decisions taken by the borrowers and lenders concerned. I do not think that the hon. Gentleman should under-rate the importance of leaving these matters to the market.