§ 1. Mr. Watkinson
asked the Chancellor of the Exchequer if he is satisfied with the present level of interest rates.
§ The Chancellor of the Exchequer (Mr. Denis Healey)
Yes, Sir. Interest rates are now consistent with the maintenance of proper control over the money supply in the interests of counter-inflation policy. The large fall overall in both short and long-term rates over the past year has helped industry and many others in the economy. The further continuation of the downward trend depends critically on wage settlements being in accordance with the Government's guidelines.
§ Mr. Watkinson
Does not my right hon. Friend agree that recent fears about money supply explosion are not grounded, in the light of the latest figures? Does he not agree also that industrial investment may well have been harmed by this increase? Does he intend that the rate 1620 should be maintained at its present level, or may it fall again?
§ Mr. Healey
I think it is true that all recent indicators suggest that some of the concern expressed about the monetary aggregates was greatly exaggerated. I thought that my hon. Friend was referring to the reversal of the 2 per cent. fall in point out that short rates are still under to the previous level. I should, however, interest rates which took place at a time when we had exceptionally heavy inflows of money. It is natural that, once those inflows cease, the short rate should revert half what they were a year ago, well below the level I inherited from the previous Government and below the level in early September. There is now evidence that private manufacturing investment increased during this period of fall in interest rates by about 13 per cent. in the first nine months of this year compared with last year.
§ Mr. McCrindle
Are not the building societies in some difficulty regarding interest trates, with funds continuing to flow in while minimum lending rate has risen by 2 per cent. in the past few weeks? Can the Chancellor of the Exchequer give them any general reassurance to assist them in their consideration of appropriate interest rates at their meeting tomorrow?
§ Mr. Healey
I have already made clear that I believe that the current level of interest rate is appropriate and is likely to remain appropriate for some time. A further fall in interest rates could take place if wage settlements were in accordance with the Government's guidelines.
§ Mr. Lawson
The Chancellor speaks of the Government's guidelines, but what is the Government's pay policy? Is he aware that he told the House of Commons in July that we were to have flexibility this year and a return to free collective bargaining next year? We now find that we have the most rigid and doctrinaire insistence on 10 per cent. precisely for every single pay settlement this year, and we are warned about stage 4 next year. What has happened to justify that U-turn?
§ Mr. Healey
I doubt, Mr. Speaker, whether that intervention was in accordance with the advice which you offered the House. There are a large number of later Questions on counter-inflation policy, 1621 and it would be unfair to hon. Members who have put down those Questions to answer a supplementary question which is irrelevant on this occasion.