HC Deb 27 June 1972 vol 839 cc1169-71
7. Mr. Bruce-Gardyne

asked the Chancellor of the Exchequer what was the increase in the money supply (M3) during the financial year 1971–72, in percentage and in money terms, respectively; and how these figures compare with those for each of the previous five years.

Mr. Higgins

The money supply (M3) increased by £2,913 million—16 per cent.—in the financial year 1971–72. With permission, I will circulate figures for the previous five years in the OFFICIAL REPORT.

Mr. Bruce-Gardyne

On Friday my right hon. Friend the Chancellor of the Exchequer told the House that he did not wish the increase in money supply to add to inflationary pressures. In view of the fact that the effectiveness of monetary policy must grow from public knowledge of its objectives, can he say whether Mr. Sam Brittan was correct to say that my right hon. Friend intends the rate of increase in money supply to come down from the present dizzy heights of 23 per cent. to the slightly less exorbitant figure of 15 per cent. by the end of the current financial year?

Mr. Higgins

A restrictive monetary policy would be inappropriate in present circumstances, but we recognise that an excesively fast expansion in monetary supply could add to pressures at a later stage. Therefore, we have considered this point. The objectives remain as my right hon. Friend stated in his Budget: to ensure that adequate finance is available for the extra output which our policies will produce. The increase in Bank rate represents not a change in monetary policy but a move to prevent a faster expansion in the money supply.

Mr. Powell

When does my hon. Friend expect the increase in money supply in 1971–72 to be fully worked through in terms of prices?

Mr. Higgins

My right hon. Friend will be aware that there is a great deal of dispute over the leads and lags in this matter but, as I indicated, we believe that the policies which we are adopting are consistent with all our overall economic objectives. We do not believe that restrictive policies would be appropriate in present circumstances, but we recognise that an excessively fast expansion in monetary supply would add to the inflationary pressures at a later stage. We have therefore take appropriate action.

Following is the information:

Increase in Money Supply (M3)
Financial year £ million Per cent.
1966–67 … … 429 3.3
1967–68 … … 1,258 9.4
1968–69 … … 1,077 7.3
1969–70 … … 374 2.4
1970–71 … … 2,031 12.6
Source: Financial Statistics.