British monetary targets 1976 to 1987: a view from the fourth floor of the Bank of England

Broad money and its credit counterparts played a key role in the conduct of British monetary policy in the period 1976 to 1987. This paper examines the Labour Government’s introduction of published targets for M3 and then £M3 in 1976, their impact on policy until the election of 1979, the Conservative Government’s retention of £M3 as the centrepiece of its Medium‐Term Financial Strategy (MTFS), the evolution of the MTFS and the move to shadowing the Deutschmark in 1987. There is already a vast literature on the conduct of monetary policy in the 1970s and 1980s, encompassing decision making in the upper echelons of government and the more prosaic debates of economists on the rationale for intermediate targets and the stability, or otherwise, of the demand for money. This is an account of the debates which took place between officials at the time from the perspective of a then junior economist working at the Bank of England.

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