§ There have been no striking changes in the economic situation since I gave the House a review two months ago. The most recent figures confirm this.
§ Here we come back to our Triple Objective. How do we complete the restoration of the external balance while at the same time increasing industrial momentum and maintaining full employment? The answer I give is this. We intend to combine a direct attack on the overseas deficit on capital and invisible account with a redeployment of resources at home so as to improve the visible balance. This is the policy we began eighteen months ago. I propose to carry it further today.
§ To achieve the redeployment of resources it has been necessary over the past year to check the growth of home demand so as to release more resources for the export industries and for import substitution.
§ The outturn was broadly in accord with the intentions of last year's Budget. There was a dip in the growth of demand in the second quarter of the year following the Budget. Since then output has been growing again and exports have played a leading part in this expansion. Industrial investment has kept up and other forms of investment have been deferred or slowed down in order to relieve the pressure on the economy. But, partly because of the reduction in working hours that has been taking place, the labour shortage has remained more acute than I had expected.
§ Looking ahead, it is likely that there will be a check to the growth of demand in the next few months. From what I have been reading and seeing, there appears to have been a good deal of buying by consumers in anticipation of tax increases, and this is likely to be followed by a lull after the Budget. In addition, the full effects of the deferment operation of last July have not yet been felt.
§ But, on present prospects, the rate of increase in home demand is likely to 1443 rise again later in the year. Private consumption may well pick up again. Public current spending at home will be rising in real terms at the reduced rate reflected in this year's Estimates; public investment will rise, too, as the first impact of the deferments wears off and as the nationalised industry programmes are carried through; public housebuilding will be expanding; and private investment should be fairly steady, perhaps with a continuing decline in commercial investment offset by some increase in private housebuilding. At present I foresee little change in private industrial investment this year. Credit is, and will remain, tight. But I shall keep a careful look-out to avoid any damaging effect on the modernisation of industry which credit restraint could have.
§ The crucial question—and it is not an easy one to answer—is whether these prospects, with all the uncertainties surrounding them, are consistent with the improvement we need in the balance of payments.
§ It is still our aim to achieve balance by the end of this year. But it is less important that the external accounts should show a balance in one particular quarter or half year than that we should achieve a trend of improvement which will carry us from deficit into surplus in a reasonable period, subject to the inevitable short-run fluctuations. Nor should we pay over-much attention to the many temporary factors which can cause fluctuations in the monthly trade figures and in the quarterly payments figures. In the period ahead, we are bound to experience fluctuations of this kind again. Some of the elements can, within limits, be foreseen—for example, the bunching together of overseas tax and royalty payments by oil companies and the effects of the Rhodesian situation. Other elements, such as the variations in capital movements one way and the other, cannot be foreseen. With all this we need not be too much concerned, since we have adequate reserves and credit facilities from which to meet temporary fluctuations.
§ The underlying trend is what matters. That is to say we must continue the great progress we made last year in reducing the deficit and aim progressively to eliminate it and move into surplus. In 1444 1966, as last year, we can look forward to a good increase in exports, since world trade should again be rising well. I am glad to say that my right hon. Friend the President of the Board of Trade will have an announcement to make later on about further improvements in E.C.G.D. facilities for exporters. This will help us to get more exports; but they must not be impeded by excessive pressure on resources, nor can we permit demand to be so high that it sucks in imports.
§ My conclusion is that I must take further action to strengthen the balance of payments both directly and by inducing the redeployment of resources. I have looked first to the capital account.