§ Events have justified the monetary policy adopted last November. But the time has now come when a reinforcement of that policy is necessary to support our other measures. Accordingly, the Bank of England have today, with my approval, raised the Bank rate from 2½ per cent. to 4 per cent. This is a sharp upward movement and will, I am sure, show to the world that we not only recognise the very serious situation of the country but are determined to deal with it by whatever firm measures may be necessary, however unwelcome they may be. This rise to a comparatively high level of money rates is, I believe, in present circumstances, an essential part of our campaign to fortify the currency. It will play an important part in our effort to improve our balance of payments. One of the surest ways to make sterling stronger is to make it scarcer, and that is what we intend to do.
§ Further, if that policy is to be successful, we cannot, in present circumstances, afford to be more generous in giving credit to traders outside the United Kingdom than is strictly justified by our various overseas interests. Action is being taken in various ways; one example was the recent reduction of the normal term of acceptance credits from 120 days to the pre-war term of 90 days: and for similar reasons it is proposed to restrict re-finance facilities.
§ Internally, the general effect of this rise in Bank rate should be a further reminder to both lenders and borrowers of the need for caution and economy in our present circumstances. The various directives which I have issued requesting that, within the scope of a tighter credit policy, priority should be given to defence, exports, agricultural expansion, and so forth, will, of course, continue to stand.
§ I do not expect this rise to be popular, either in financial or industrial circles, or anywhere else. The use of the Bank rate—and I must remind the Committee of the position in which our country is in in regard to our resources—can make an important contribution towards the right economic climate, particularly towards 1283 the diversion of resources from investment, above all, to export. I would console the Committee by reminding them that the Bank rate is a flexible instrument, and I give this assurance: it will be watched to ensure that its operation brings about conditions helpful to the strength of our economy. A healthy balance of payments is for our country the essential safeguard, in the long term, of the high and stable level of employment at which we all aim. The Bank rate will reinforce the other factors already operating to restrict investment at home—the suspension of the initial allowances introduced by the right hon. Member for Leeds, South (Mr. Gaitskell) as from next month, the physical controls over steel allocations, and the voluntary arrangements between the Ministry of Supply and Manufacturers to decide how much production should be devoted to the export trade.
§ I expect the cumulative effect of all these measures taken together to lead to a marked reduction in civil investment, particularly in plant and machinery, and in stocks. To some extent this may be offset by an increase in investment for defence and in building; but in total I have no doubt that we can confidently expect a marked contribution to the freeing of resources for our balance of payments. I am allowing for a saving of at least £100 million here, but in view of the great difficulty of exporting other goods, I hope we shall save even more.