Money Supply (Hansard, 5 July 1973)

§ 5. Mr. Duffy
asked the Chancellor of the Exchequer if he is satisfied with the present volume of money supply.

§ Mr. Nott
During recent months there have been sharp changes in the rate of growth of the monetary aggregates, but our judgment of the underlying trend is that it is satisfactory in relation to the achievement of our overall economic objectives. My right hon. Friend keeps the situation under continual review.

§ Mr. Duffy
My Question relates to the volume of M3 and not monthly fluctuations in its rate of change. As the continued high rate of inflation—as the Government Front Bench was reminded by its back benchers on Tuesday—cannot be ascribed to wage costs at the moment, due to phases 1 and 2, or attributed wholly to the cost of imported raw materials, how far can the Chancellor be sure that it is not due to his own policies, especially his borrowing requirement and the present continued volume of money supply?

§ Mr. Nott
Our policies on money supply are aimed at ensuring that we maintain our current rate of expansion and, at the same time, that in no way does the growth of money supply increase the rate of inflation. These are the two objectives that we pursue, and I believe that we are pursuing them successfully.

§ Mr. Bruce-Gardyne
Will my hon. Friend bear in mind that the two objectives he has stated are not regarded by all of us as being totally compatible? Does he recall that when the prices and incomes policy was introduced we were told that one of its purposes was to enable monetary policy to become rather less exuberant than it had been before, without embarrassing side effects? 703 Is my hon. Friend satisfied that the 19 per cent. rate of increase in MI during the last three-monthly period conforms to that objective?

§ Mr. Nott
I do not remember my right hon. Friend or any of my hon. Friends in the Treasury using the adjective "exuberant" about the money supply. There is no single correct indicator of the money supply. The monthly series for M1 tends to move erratically from month to month, but the faster growth of M1 in some recent months may reflect, in part, the more active use of funds previously held on deposit accounts.