§ I turn now to the outlook for the coming year, and first to the balance of payments. I should at the outset make it clear that last month's currency re-alignments should not have a significant effect on our current balance. As last year, I expect to see a substantial overall surplus on services like shipping, banking and insurance, and from income from overseas investment. This surplus is at present running at an annual rate of about £700 million. It is expected to continue at broadly this rate, and this is after allowing for the initial payments to the EEC budget. This surplus will offset much of the visible trade deficit which is likely to persist through the year.
§ In this connection, it is particularly important to bear in mind that the exceptionally high current surpluses in 1970 and 1971 reflected low domestic demand and high unemployment. It was wholly predictable that high growth and falling unemployment should lead to a growing volume of imports. But as industry becomes geared up to higher output and home supplies increase, the rate of increase of import demand should ease, especially because the pattern of growth of demand is likely to be more even than last year, with less emphasis on cars and consumer durables, and with demand on the heavy engineering industries, where there is most slack, beginning to pick up.
§ Furthermore, there are now strong signs that the recovery of world trade is under way. The beginning of this expansion was reflected in our export performance in the second half of last year. Although overall volume growth was modest we increased very substantially the volume of our exports to the faster growing and highly competitive markets of Western Europe. Between the two halves of last year the volume of our exports to EEC countries rose by over 5 per cent. This year the recovery in world trade should be more widely spread, and recent increases in world market prices of food and basic materials will eventually be reflected in an increased demand for imports by the producing countries.
§ British industry is now exceptionally well placed to seize the opportunities provided by this situation. The productive 247 capacity is available, and the movement of sterling since last June has improved the competitiveness of our exports.
§ It has also improved the competitiveness of United Kingdom goods on our home market compared with imports from overseas. As these changes work through they will make a direct contribution to a more fully employed economy and to an improvement of the trade balance by curbing the volume of imports and increasing the volume of exports.
§ It is obviously desirable to ensure that the capital outflows which are necessary—for example to provide for aid and investment in less-developed countries and for export credits—are offset to an adequate degree by inward capital flows. The House will know that, after the excessive inflow of dollars in 1971, we withdrew exchange cover facilities for foreign currency borrowing by certain public sector bodies. Similar facilities will now be restored and the Government will accordingly consider applications in appropriate cases.