HC Deb 22 March 1973 vol 853 cc638-40
10. Mr. Bruce-Gardyne

asked the Chancellor of the Exchequer what was the increase in the money supply (M3) in the latest period of three months for which figures are available, expressed as an annual rate; whether this rate of increase was in conformity with Government policy; and if he will further define the objectives of monetary policy in the year ahead.

Mr. Patrick Jenkin

For reasons discussed in the March issue of the Bank of England quarterly bulletin, M3 is not at present a reliable indicator of the thrust of monetary policy. Although, therefore, the rise at an annual rate in the three months to mid-January was about 30 per cent., this has to be compared with the corresponding figure for Ml which was 6 per cent. On the last part of the Question, I have nothing to add to my right hon. Friend's Budget Statement.

Mr. Brucc-Gardyne

I am grateful to my hon. Friend for that answer. I accept that M3 may in future leave something to be desired as the right statistic of monetary growth, but can my hon. Friend shed a little further light on the Government's clear monetary objectives in the year ahead? Did not my right hon. Friend tell us in his Budget Statement that the objective was to ensure that the very large borrowing requirement did not lead to an excessively fast rate of monetary growth? Will my hon. Friend define an excessively fast rate of monetary growth? Was the rate of monetary growth in the last period for which we have statistics excessively fast in that context? If it was, how much less would not be excessively fast?

Mr. Jenkin

It must be clear that there cannot be any one correct indicator of monetary policy, particularly in a period when we have rapid structural change in our financial institutions. It is essential to consider the whole array of published information. As well as the two measures of money supply this must include reserve ratios, bank lending to the private sectors, interest rates, and other indicators.

My hon. Friend quoted correctly my right hon. Friend's Budget Statement. However, the range of these indicators has to be kept under constant review to ensure that the thrust of monetary policy is consistent with our objective of rapid economic growth and steadier prices.

Mr. Sheldon

The hon. Gentleman did not answer the question of his hon. Friend the Member for South Angus (Mr. Bruce-Gardyne). In his Budget Statement the Chancellor said that he would limit to the maximum extent the money supply resulting from the excessive borrowing requirement. What is his definition of "maximum extent"?

Mr. Jenkin

My right hon. Friend deliberately used qualitative words. We do not regard it as helpful to try to lay down rigid targets in advance for the development of monetary policy. Under the new arrangements it is essential to have flexibility.