Inside the Bank of England, By Christopher Dow


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The Independent Culture

The economy is stagnating; the pound is falling; unemployment is climbing; the budget deficit is soaring; the prime minister is dithering – and the Treasury and the Bank of England completely disagree about what is to be done.

Sounds familiar? This was Britain in the 1970s, a decade that saw the country experience the three-day week, a rescue loan from the International Monetary Fund, and the "winter of discontent" – followed by the equally fraught early years of the Thatcher government.

It was a period of economic failure that has affected politicians of all colours for a generation. Yet it is hard to catch a feeling for what it was like to be trying to hold things together, which is why a set of memoirs from Christopher Dow, chief economist at the Bank of England 1973-84, deserve a wider welcome.

Two things stand out. One is the set of pen-portraits of officials and their interaction with the politicians. There was Margaret Thatcher telling Gordon Richardson, governor of the Bank, that he should not spend "all those lovely dollars" supporting the pound on the exchanges. "Would you like the rate to go down?" he asked. "Certainly not. I have made that very clear," she replied.

The other is the way in which things that seem inevitable now appeared very different at the time. Before the IMF bail-out, officials in the Bank seemed surprised that there should be a run on the pound. Dow himself was sceptical of the value of monetary targets, the principal device used to rebuild monetary discipline from the late 1970s onwards. "It will be evident," Dow writes referring to targets, "that much that was said and done was stupid."

Indeed, the final part of the memoirs chart how most economists opposed government aims, not just over monetary but also fiscal policy: cutting the deficit despite the global recession of the early 1980s. Yet that period – rightly or wrongly – embedded a set of economic policies that carried through for the next 25 years.