§ Mr. Gouldasked the Chancellor of the Exchequer what is his estimate of the effect high interest rates have on the sale of gilts; and what estimate he has made of the effect of the sale of gilts on the money supply.
§ Mr. Denzil DaviesIt is not the level of interest rates but expectations for their future course which matter most; if, after an increase, investors expect a further rise in rates they may still be reluctant to purchase gilts on any substantial scale. To the extent that the authorities make sales of gilts to the non-bank domestic private sector and the overseas sector, rather than to the banks, there is a contractionary effect on money supply.