Database of Bank of England operations in the gilt-edged market, 1928 – 1972

Compiled by William A. Allen

This note introduces a new set of data which are now available on the National Institute of Economic and Social Research website.

The Bank of England’s capacity to deal in the gilt-edged market increased greatly in 1928, when the Treasury note issue was amalgamated with the Bank of England note issue. From 1914, the Treasury had issued £1 and 10 shilling notes, while Bank of England notes had been for £5 or more.[1] The amalgamation of the note issues, or, more accurately, the absorption of the Treasury issue into the Bank of England issue, was a logical accompaniment to the return of sterling to the gold standard in 1925.[2]

At the time of the amalgamation, the Issue Department of the Bank of England inherited the assets of the Currency Note Redemption Account, the Treasury account which had held the assets backing Treasury notes. As a result, the Issue Department more than doubled in size, and the Fiduciary Issue, which was the amount of Bank of England notes that could be issued without gold backing, increased by thirteen times. The Issue Department could hold gilts, or other assets, in an amount up to but not exceeding the Fiduciary Issue. As an incidental result of the amalgamation, the Bank of England thus acquired the capacity to intervene on a large scale in the gilt-edged market.

The data support William’s book, The Bank of England and the government debt: operations in the gilt-edged market 1928 – 1972, to be published early in 2019 by Cambridge University Press. It describes how the Bank of England used its capacity to intervene in the gilt-edged market; how its concerns about inadequate market liquidity led it to redesign the market, and later to become the market-maker of last resort and occasionally to bail out the commercial market makers; how its intervention operations came to conflict with its monetary policy objectives; and how, in 1968 – 71, it managed to reduce the scale of its intervention and ameliorate the conflict. These aspects of the history of the gilt-edged market and the Bank of England are not widely known and have not hitherto been documented.

The data are drawn from three main sources: the Bank of England archives, the National Archives, and Pember and Boyle’s magnificent two-volume compendium British government securities in the twentieth century (1950 and 1976). Details of the sources are shown on the spreadsheets. The data show, separately, the Issue Department’s purchases and sales of each gilt-edged stock in the secondary market. They also show, in the case of new issues and conversions, the amounts bought or converted by the Issue Department, in its capacity as underwriter, and, where the data are available, by the National Debt Commissioners. The data which are monthly from 1928 – 1954, and weekly from 1949 – 1972, are set out in six spreadsheets.

A separate spreadsheet shows the holdings of over – 1 – year gilts, stock by stock, of the discount houses, at the end of each year from 1939 to 1968, and at the end of June 1957. The discount houses were for a time market makers in short-dated gilts, alongside the jobbers in the Stock Exchange, which made markets in all gilts.


References

Morgan, E.V. (1952), Studies in British financial policy, 1914 – 1925, Macmillan.

Pember and Boyle (1950 and 1976), British government securities in the twentieth century, privately published.

Roberts, R. (2013), Saving the City, Oxford University Press.

Sayers, R.S. (1976), The Bank of England 1891 – 1944, 2 volumes plus appendices, Cambridge University Press.


[1] See Morgan (1952, ch I), Sayers (1976, ch 5A and appendix 3), Roberts (2013).

[2] Sayers (1976, ch 12 and appendices 19 and 20)