Now that devaluation is happening, the Government must grasp the nettle of budgetary policy. A sharp reduction in the budget deficit is needed, and the new exchange rate should be chosen so that overall demand remains broadly unchanged (or is increased very slightly). This would put the economy on a sound footing without leading to any resumption of inflation. It would provide a sound basis for economic recovery.
Independence for the Bank of England should not be part of the package. That would only support the mistaken belief that monetary policy can be handled independently of budgetary policy.
M. R. WEALE
Faculty of Economics and Politics
University of Cambridge
17 SeptemberReuse content