HC Deb 07 February 1957 vol 564 cc604-6
44. Mr. H. Wilson

asked the Chancellor of the Exchequer if, in view of the fall in the Treasury Bill rate he will make a statement about his policy in relation to the Bank Rate.

The Chancellor of the Exchequer (Mr. Peter Thorneycroft)

As the House is doubtless aware, the Bank of England has today announced a reduction in the Bank Rate of ½ per cent. It would be wrong to interpret the move from the 5½ per cent. to a 5 per cent. Bank Rate as a change in economic policy. This is not a signal for bankers or others controlling sources of finance to relax credit or to ease restrictions on lending.

Today's reduction in the very high rate which has prevailed for the last twelve months, is designed to enable the Bank of England to maintain the full effectiveness of monetary policy. I am assured that its control will not be weakened by this move.

I must emphasise to the House that there is no change in the need to restrain both public and private spending and lending in order to make room for exports and essential investment. As long as these are our economic objectives, we intend to continue to make full use of interest rates to discourage spending and encourage savings. At the same time, as my right hon. Friend the Prime Minister said on 5th June last, it is necessary that our monetary policy should remain flexible and the Bank Rate will be varied as circumstances require.

Mr. Wilson

While thanking the Chancellor for that Answer, may I ask whether he will allow me, I am sure on behalf of the whole House, to congratulate him on having taken this decision, in view of the fact that the Bank Rate last went up on 16th February last year, the day after the Taunton by-election and has been reduced this year the Thursday before the North Lewisham by-election? That having been done, would the right hon. Gentleman tell the House what additional deductions we must draw from his statement, apart from those which he has given the House, for which we thank him?

Are we to take it from this Answer that the Chancellor now assumes, in view of the reasons given by the Prime Minister a year ago for the increase in the Bank Rate, that the gold reserves are in such a position that they no longer need the protection of the Bank Rate? Are we to assume—and these are very important questions—that the Chancellor now wants an increase in investment which the Government were trying to discourage, or that he does not?

Finally are we to assume that the right hon. Gentleman now accepts the argument, which we on this side of the House have put over a period of years, that he can have an effective monetary policy without necessarily having very high interest rates?

Mr. Thorneycroft

All that the right hon. Gentleman need assume from my Answer is that this is not the time to let up and that this move is simply designed to maintain an effective monetary policy.

Mr. Gaitskell

Could the right hon. Gentleman explain how a reduction in Bank Rate enables the Bank of England to have a tighter control over the credit situation?

Mr. Thorneycroft

I do not want to get into a technical discussion, particularly with the right hon. Gentleman. All I would say is that the effective use of monetary policy is concerned not only with the Bank Rate but with the market operations associated with it.

Mr. Nabarro

Does not this important change signify growing confidence in the economic policies of Her Majesty's Government?

Mr. Thorneycroft

Certainly we have full confidence in the policies of Her Majesty's Government, but I want to emphasise that this change in Bank Rate is not a signal that there is no need for restraint. That need will remain.

Mr. Gaitskell

In view of the right hon. Gentleman's reference to market operations, does he mean that the purpose of this change is to enable the Treasury to borrow or reborrow more cheaply than otherwise it would have done?

Mr. Thorneycroft

I do not wish to add any comment to what I have said.