HC Deb 06 April 1976 vol 909 cc235-6

I turn now to the balance of payments. I predicted a year ago that the current account would improve by at least £1 billion between 1974 and 1975. In the event, it improved by nearly £2 billion, from a deficit of £3,650 million in 1974 to one of £1,700 million last year.

This improvement was due partly to a favourable change in import volumes relative to export volumes and partly to an improvement in the terms of trade. Import volumes fell by 7 per cent. as a result of the domestic recession and heavy de-stocking. Export volumes also fell, but by less. United Kingdom exporters increased their share of world trade in manufactures in the first half of the year but may have lost some of this gain in the second half as world demand recovered. The terms of trade moved in our favour by 12 per cent. between the second quarter of 1974 and the third quarter of 1975, since when they changed little until the recent depreciation of sterling. There has been little change in the balance of invisible transactions.

Relative to GDP, the improvement in the balance of payments is even more striking. In 1974 the current account deficit was over 5 per cent. of GDP. In 1975 it fell to a little under 2 per cent. I believe that we will be able to hold on to this improvement in 1976, despite the upswing in home demand.

Foreign currency borrowing helped substantially to finance the current account deficit in 1975, and borrowing by public sector bodies under the Exchange Cover Scheme has already made an important contribution this year. Moreover, apart from the special oil facility, our credit lines in the IMF remain wholly undrawn, and the amounts potentially available have indeed been temporarily increased by 45 per cent. to the equivalent of just over SDR 4 billion—£2.4 billion—under the agreement reached at Kingston, Jamaica, in January. We should thus have no difficulty in meeting our external financing needs this year. But I must emphasise that this depends on our success in fighting inflation and in maintaining confidence in our determination to pay our way in the world.