§ I come now to consider the economic prospects for the coming year. I will start by looking at the world outside the United Kingdom. For more than a year now world production and trade have been expanding strongly, and they seem likely to continue doing so. In the great industrial nations of Europe and North America expansion continues, and, mainly as a result of this, the primary producing countries, who did not do so well in the earlier stages of world recovery, are now enjoying a happier trend.
§ We ought to be able to sell a steadily increasing volume of exports in these 41 overseas markets as their prosperity advances, and once again I must say that all our hopes for continued economic progress depend on the success of our exports. This, in turn, will depend partly on the vigour with which our exporting industries seize their opportunities, and partly on the economic forces which determine both the claims of the home market and the level of our costs.
§ Some of these economic forces can be influenced by Government decisions, while others depend on the actions of employers and trades unions all over the country. That is what I have been trying to emphasise in my speeches when I have said that the responsibility for ensuring that sensible policies are followed is one in which all of us have a part to play—through the exercise of our own individual responsibilities and through that powerful collective influence, public opinion. If the benefits of higher productivity can be shared throughout the nation and not used solely to increase wages or profits it will make a tremendous difference to our economic welfare.
§ So much for export prospects. On the side of home demand the principal item is personal consumption, and here too continued expansion seems probable. Personal incomes will tend to rise as a consequence both of increases in wages, salaries and profits, and of the higher level of employment. Consumption will consequently also tend to rise, though there is one offsetting factor here, and that is the increase in the amount of income which has to be set aside for the repayment of hire-purchase debt. It is unlikely that the net increase in this debt will be nearly so large this year as last and this will damp down the rise in total consumer demand. I do not expect the rate of increase in consumer demand from now onward to be as rapid as it was during 1959, though for the year as a whole the growth over last year might well be of the order of, say, 4 per cent.
§ The volume of goods and services purchased by public authorities will also tend to rise somewhat. The size of this rise is not exactly indicated by the increase in the total of the Estimates, for several reasons. The Estimates, first, cover only the expenditure of the central Government: on the other hand, they cover a good deal of expenditure that does not make a direct claim on goods 42 and services. Finally, the Estimates are in money terms, whereas what I am speaking about now is in real terms. Making allowances for both these factors I expect a rather faster rate of increase in public current expenditure this year than last year, and the rise between the two calendar years looks like being about 4½ per cent.
§ The next most important item in home demand is investment in fixed capital. In the public sector, I estimate that the amount of investment in the coming financial year will be about 6 per cent. above that for last year. But a good deal of this rise has already taken place in the early months of the year and the rate of growth has been slowing down, so that the pace of the increase from now on should be rather less than that figure.
§ The outlook for investment in the private sector has changed markedly over recent months. I shall refer, in turn, to the prospects in the three main sectors —manufacturing industry, the distributive trades, and private house building.
§ Our study of the prospects for private industry and trade is very greatly assisted by the forecasts of capital expenditure which are regularly supplied to the Board of Trade by a large number of firms in industry. This information has proved to be quite a good indicator of the total of business investment. I should like to thank all the managements concerned who co-operate in this and other statistical inquiries, which take up a good deal of manpower, as I realise, but which help to provide the factual basis which we need for our decisions.
§ The declining tendency in investment in manufacturing industry gave me quite a bit of anxiety last year, particularly when the forecasts collected in the middle of the year seemed to point to a further decline in 1960. It is evident, however, that towards the end of the year manufacturers substantially revised their plans, for the results of the survey made in December pointed to an expected rise of 14 per cent. in investment between 1959 and the present year. The most dramatic increase was in the steel and motor car industries, but there was a definite upward revision over a much wider field. No doubt the raising of the sights was a sign of growing confidence in the expansion of the economy: I have even heard it suggested that certain 43 political events last October may conceivably have played a part. I express no opinion on that thesis, but these views must be recorded. Whatever the causes, this result was most welcome to me.
§ In the distributive and service industries, investment has been growing fairly steadily from year to year for some time past, and here, too, there was a considerable upward revision in the forecasts for 1960 between the middle and end of last year. The revised forecast, which is a high one, and I do not know whether it will be realised, shows an increase of 20 per cent. Finally, the growth of private house building, which was so marked a feature of 1959, is also expected to continue throughout 1960.
§ Clearly, this expectation of increased investment in industry generally, and in house building, will provide a further expansive force in the economy during the coming year. In total, I expect an increase of at least 10 per cent. in private investment demand between 1959 and the present year. In itself I warmly welcome this continued growth in investment, which, reinforced by the still rising investment in the public sector, will provide the indispensable foundation for the further increases in production and in living standards that we all want.
§ But I must remind the Committee that an increase in exports, which is essential as a sound base for all our other activities, and an increase in investment, which is necessary for continued growth, can only be achieved if we are willing to set appropriate limits to the other calls made on our expanding production. It is my duty to see that these limits are not exceeded.
§ So far, my review of the various elements of demand falling upon our productive capacity has shown them all as likely to rise somewhat. The last and most uncertain element is investment in stocks and work-in-progress. This is an element which is very hard to measure and even more difficult to forecast, particularly because the trend is apt to change very suddenly. It seems reasonable to expect a continued building up of stocks in line with the expansion of activity generally, but it does not seem likely that the rate of build-up will go on increasing as fast as it did during last year.
44§ What I have said will have shown that there cannot be much doubt that demand in total will continue to increase. The rate of increase will probably be less than it was in 1959, for the two main reasons which I have indicated, namely, that net lending on hire purchase will probably be lower and that investment in stocks is unlikely to exert such an expansionary force as it did in 1959. On the other hand, we no longer have the reserves of labour and capacity on which we could count a year ago. These reserves have been to a considerable extent taken up already by the expansion of production. We still have a certain amount of unused capacity in particular industries, and particular places. The existence of this capacity may make it possible, I think, for production to continue to grow for a time at a faster rate than we could hope to maintain year in year out. But if we look at the economy as a whole there are some dangers that expansionary forces already in the economy could lead to overloading.
§ If the economy were to be allowed to become overloaded our hopes of maintaining price stability would be destroyed. A still more dangerous result would be the threat to the balance of payments, and that must always be our main concern. The key to a sound position here is the growth of our exports. Everything depends on that. We must increase our overseas earnings sufficiently to meet the claims on them. These claims will be higher in the coming year for several reasons. First, our import bill may well be higher. The growth in home production will call for higher imports of materials and there may, of course, be some rise in import prices. We cannot expect that the very favourable terms of trade which we have enjoyed in the last few years will always be with us. [HON. MEMBERS: "Hear, hear."] I have always acknowledged the assistance that is given.
§ Secondly, there is likely to be a continuing rise in overseas investment, both public and private. As can be seen from the White Paper which we published a few weeks ago, there has been a rapid rise in the last two years in the amount of assistance given by the United Kingdom Government to the less developed countries. If we are to keep up that rate of investment and meet the cost of our 45 imports, then we must increase our export earnings. That is the central challenge and we should delude ourselves if we think that we can ignore it.
§
This point was admirably put, if I may say so, by my right hon. Friend the Prime Minister in his speech to the Commonwealth and Empire Industries Association on 15th March. He said:
But one thing I would say to our people at home. We cannot give aid abroad unless we are prepared to that extent to limit the growth of our consumption at home. You can't lend unless you have a surplus to lend from. It is not much help lending someone part of your overdraft. This is no appeal for austerity. Our national output is growing fast, and we can give aid and still have a rising living standard. But the cost of the aid still has to be met out of our product; and, equally important, it demands rising exports to provide a margin of foreign exchange for investment and assistance overseas.
§ The importance of this problem, which my right hon. Friend posed so clearly, cannot be overstressed.. It is fundamental to our whole position.
§ So our present position is one in which production, employment, investment and savings are all running at a high and satisfactory level. The cost of living is stable. The standard of living of the nation has never been so high. This is great progress. We all want it to continue. That is entirely possible, provided that we do not force the pace beyond our resources. What those resources permit at any time is a difficult matter of judgment. My own judgment is that the prospective increase in demand arising from the factors I have mentioned is likely at least fully to absorb, and might even involve a danger of outrunning, the increase in production which can be expected.
§ An important factor in maintaining a proper balance in the economy is, of course, monetary and credit policy. Here, we must be continually on our watch to see that our policies are adapted to changing circumstances. Last year, we were glad to see an expansion of credit, which made a notable contribution to our policy of stimulating the economy. Now, however, I judge that we have reached the stage where we should be cautious about further expansion of credit. We have no wish to take such drastic action as might reverse the trend of private industrial investment. But, equally, we must be careful not to 46 allow credit expansion to prejudice stability in the internal economy or balance of payments.
§ First steps in changing the climate for private lending have already been taken by the increase in Bank Rate in January and in open market transactions. I must tell the Committee that I think it likely that the time may soon arrive when it would be right that we should take other steps to restrain further expansion of private credit; and we stand ready to do so.