HC Deb 09 April 1962 vol 657 cc962-4

The Exchequer out-turn has to be considered against the background of developments in the economy generally. At the time of last year's Budget, demand for goods and services, for consumption and investment at home, was beginning to place too heavy a load on our productive resources. Incomes were moving up fast and, in consequence, unit costs were rising. After two and a half years of comparative price stability in 1958, 1959 and the first half of 1960, prices were showing a dangerous upward trend.

In these conditions it was clear that a fairly strict Budget was necessary, with a large surplus above the line. I also thought it prudent to ask Parliament for special powers to regulate the economy, either by stimulation or restriction, in the course of the financial year.

In the event, despite the help we received under the arrangements made at Basle, the drain on our reserves, originally set off by the revaluation in March of the mark and the guilder, continued through the early summer and increased in momentum in July. Doubts persisted about the balance of payments, the strength of sterling and the national will to deal with inflationary pressures in the economy.

We therefore took the measures announced to the House on 25th July, including notice of the application for a drawing from the International Monetary Fund, which was subsequently agreed at £536 million.

These measures, in my view, achieved the immediate objective. Confidence in the £ was restored, the drain on the reserves ceased, and exchange rates moved in favour of sterling. Over the following months personal consumption was affected by a number of factors; by a marked fall in bank advances, by the surcharge on Customs and Excise duties, and by the check to increases in personal incomes. There was also a fall in the rate of stockbuilding. As a result, the pressure of home demand has been markedly reduced. In the light of all these developments it has proved possible to make successive reductions in Bank Rate and to repay £225 million to the International Monetary Fund.

    cc963-4
  1. BALANCE OF PAYMENTS 336 words