I have aimed to keep the rate of monetary expansion firmly under control and to avoid a repetition of the experience of 1972 and 1973 when excessive monetary growth contributed substantially to inflationary pressures, as I gather the new Conservative Front Bench would agree. In 1974, on the other hand, M3, the broader definition, rose by 12½ per cent. while M1 rose by 11 per cent.; both of these rates were very much lower than the underlying growth rate of gross domestic product in money terms and compare much more favourably still with the 28 per cent. growth in M3 in the previous year. That this modest rate of monetary expansion has been compatible with the larger public sector borrowing require- 280 ment reflects various factors £in particular, the large domestic sales of public sector debt outside the banking system, the way in which the external current balance of payments deficit has been financed, and the fairly modest level of demand for bank credit from the private sector. With money supply rising at this rate, the growth of banks' interest bearing eligible liabilities was, in late 1974 and early 1975, increasingly well within the guideline or "corset" set out under the supplementary deposits scheme. In fact, the "corset" was no longer necessary, at least for the time being, to keep the growth of money supply down to an acceptable rate. On 28th February, therefore, the Bank of England was able, with my approval, to suspend the operation of the scheme.
Interest rates have fallen substantially over the past year. This has been a welcome relief to industry and other borrowers.