HL Deb 05 February 1990 vol 515 cc517-8

2.50 p.m.

Lord Bruce-Gardyne asked Her Majesty's Government:

When they now expect the narrow money indicator (MO) to come back within the target range set for it at the time of the 1989 Budget.

The Paymaster General (The Earl of Caithness)

My Lords, MO's growth rate has fallen appreciably since its peak in the summer of 1988. The Government will continue to take whatever steps are necessary to ensure that it reaches, and remains within, the target range.

Lord Bruce-Gardyne

My Lords, I am grateful to my noble friend for that reply. Can he place the conduct of MO in the scale of the Government's priorities and concerns in monetary policy? Is it at the top or is it wandering along somewhere near the bottom?

The Earl of Caithness

My Lords, MO has proved a reliable indicator of monetary conditions. Therefore we take particular note of it. It is the only monetary aggregate that is targeted, but we look at other measures such as M4.

Lord Bruce of Donington

My Lords, in the event of the indicator MO remaining outside the target range set by the Government, will they admit to the failure of their policies to meet the target? Alternatively, as on so many previous occasions, will they consider abandoning the indicator, as they did with M4 and M3?

The Earl of Caithness

My Lords, we believe that MO will come within its target range. However, forecasting is a hazardous business and I shall not make a forecast today. I know that the noble Lord would like everything to be under the strict control of the Government, but MO is not necessarily under such control because it takes into account consumer expenditure.

Lord Ezra

My Lords, will the noble Earl indicate whether the Government attach any importance these days to the related indicator of broad money? They paid attention to it up to 1985 but have since lost interest in it. Is the Minister aware that the broad money indicator for the UK is substantially in excess of that for any other OECD country, with the possible exception of Australia, and that that is an indication of an excess amount of credit in the economy?

The Earl of Caithness

My Lords, as I said to my noble friend Lord Bruce-Gardyne, we take the broad money indicator M4 into account.

Lord Bruce-Gardyne

My Lords, do not the figures quoted by the noble Lord opposite suggest that there must be evidence for believing that monetary policy is still more lax than it should be for the comfort of Her Majesty's Government?

The Earl of Caithness

My Lords, we continue to review both monetary and fiscal policy on a regular basis. If further measures are needed they will undoubtedly be taken.