§ Within the framework of this monetary policy, we must also do our best to ensure that rising prices and earnings do not make our industry uncompetitive. 1193 This will require co-operation from employers and trade unions alike. We must start with a collective determination to ensure that we do not allow the rate of inflation to begin rising again from the levels we expect to reach this summer. On the contrary, we must aim at a further fall.
§ This will not be easy to achieve. Over the last 12 months we have been helped in getting the rate of inflation down by the appreciation of our currency and by the fall in world prices which accompanied the fall in world growth and trade. We cannot rely on similar assistance in the next 12 months. That is why the forecast in this year's FSBR shows an increase of 1 per cent. in the inflation rate by the middle of 1979, even assuming that earnings increase only half as much in the next pay round as is likely in this round. Earnings in fact will be the key to the inflation rate next year. Although earnings have increased in the current round far less than most observers expected a few months ago, they are still growing faster in Britain than in most of the countries which compete with us, and our productivity is growing more slowly.
§ So we shall be unable to prevent our rate of inflation from rising significantly next year unless we can achieve much lower levels of increase in wage costs than we have achieved this year. If we fail to achieve this, then, whatever the size of the stimulus I give to the economy in this Budget, we cannot expect to keep control of prices or to see the faster fall in unemployment at which we aim.
§ I therefore propose early discussions with the representatives of both sides of industry to see, first, whether they agree with the Government that we must keep inflation moving down next year and, second, what policies are appropriate in the field both of prices and of earnings to ensure that we achieve this objective.
§ I believe that the success we have achieved in fighting inflation over the last few years both through our control of the monetary aggregates and through our policy for pay and prices provides reasonable grounds for confidence that we can continue to make progress in the fight against inflation in the next 12 months.