§ In the same way it will be necessary to maintain guidelines on bank lending while the new ideas I have mentioned are being explored. I am sure that the banks will understand the reasons for this and that we can count on their continued co-operation.
§ The present is a difficult time for assessing what is required. I do not wish to see companies in the present situation impeded by undue, stringency of working capital. I have therefore reached the conclusion that while the rate of growth of restricted lending must still be limited, the limit need not be so severe as it was under the 5 per cent. guideline announced by the right hon. Gentleman last year. For the time being it would not be inconsistent with our general objectives if this lending were to grow at a rate of about 2½ per cent. a quarter.
§ We shall, however, have to watch this carefully and it is possible that something less will be more appropriate later in the year. I hope that the banks—and finance houses, to whom this guideline will also apply—will channel this additional credit mainly to companies. The general guidance on the direction of lending still stands; in particular, restraint should continue to be observed in the field of personal lending.1374
§ What are the implications for money supply? In the first three quarters of the financial year 1970–71, as I have said, money supply rose on average by about 3 per cent. a quarter. The rise was 4 per cent. in the April-June quarter, about 1½ per cent. in July-September and 3 per cent. in October-December. Given the current growth of incomes, there would be dangers for liquidity and employment if we sought immediately to reduce the growth of money supply to much below 3 per cent. per quarter.
§ But this does not mean that I intend the growth of money supply simply to accommodate the going rate of inflation. As the rise in costs and prices is moderated, so the aim will be to slow down the growth of the money supply. This will depend on the progress we make in de-escalation. I do not want to prejudge this or appear to set a limit to what can be achieved by laying down now a firm objective for money supply for 1971–72 as a whole. But there is no question of relaxing our grip on the growth of money supply in relation to the growth of expenditure.
§ I believe that this approach is more appropriate this year than setting a quantified D.C.E. objective for the full year. In any case, D.C.E. is a less relevant indicator when the external position is strong. And I might also add, not by way of reproach or criticism, that on each of the two previous occasions when a D.C.E. objective was stated, the actual result was several hundreds of millions out, first in one direction, and then in the other.