§ I turn now to the future, and before I consider the outlook for the domestic economy, I deal briefly with the external prospect.
§ World trade in manufactures is expected to grow at a fairly rapid rate in the year ahead, so there should be good export opportunities. We can expect another sizeable current account surplus in 1971, but it is not likely to be as high as in 1970. There are two special factors which are bound to increase our import bill. One is the increased cost of oil imports. The Teheran Agreement alone is likely to add some £55–60 million in the current year to our oil imports from those sources which are covered by that agreement. As the House knows, negotiations on oil imports from our other main sources—that is, other than those covered by the Teheran Agreement—have still to be concluded. The other special factor is the exceptionally large tonnage of new shipping due to he imported this year.
§ The visible trade figures are likely to show a moderate deficit on average over the year. But this need not be a cause for concern so long as net earnings on invisible account continue strong, as they are expected to do.
§ I am bound to take account, however, of the danger to our competitive position, and so to our surplus on current account, of the rapid rise in costs which we have been and still are experiencing. If our costs and prices go up significantly faster than those of most of our competitors, this must in due course make inroads into our surplus.
§ It is obviously essential that we should maintain a strong current surplus. It is not enough just to balance the current account. We need a surplus to provide for repayment of the remaining debt to the I.M.F., and also to support certain outflows of capital and investment items which are normal, inevitable, and, provided that we can finance them, beneficial. The big items of this kind are three. First, official long-term capital, which is mainly repayment of long-term debt and development aid. Second, private overseas investment, which is at record levels, although this is by no means 1367 all a demand on the current surplus and is matched to some extent by inward investment. The third is export credit.
§ Export credit is important particularly for trade in capital goods; but the provision of credit means exporting without an immediate cash return. It is a significant fact that export credit outstanding from this country has recently been increasing by over £300 million net a year. We are also recipients of credit on some imports but this is considerably smaller.
§ Of course, a considerable proportion of these outflows of capital can quite properly be financed by additions to liabilities, that is, by various forms of overseas borrowing; but the main basis of finance must be the current surplus.