§ 11. Mr. Peter Bottomley
asked the Chancellor of the Exchequer what effect the current level of minimum lending rate is having on his economic policy.
§ 4. Sir Brandon Rhys Williams
asked the Chancellor of the Exchequer what steps he is taking to promote a reduction in interest rates in London.
§ Sir Geoffrey Howe
Control of monetary growth is central to our economic policy. The commitment to progressive reductions in the public sector borrowing requirement and cuts in public expenditure should mean that, as they take effect, less emphasis has to be placed on interest rates to secure our monetary objectives. The increase in the minimum lending rate was necessary immediately to reduce the excessive rate of growth of the money supply. It should be possible to allow a fall in interest rates when we can be sure that monetary growth is under control.
§ Sir G. Howe
As I stated in my answer, as the reductions in public expenditure and public spending plans foreshadowed in the Budget Statement take effect. My hon. Friend must understand—and Labour Members must understand equally clearly—that when we came into office we were committed to plans for the expansion of public expenditure that were quite unrealistic and unsustainable. They are being reduced, and that will be one of the factors that will lead to the result that my hon. Friend wants.
§ Mr. Jay
Is it not folly to meet a temporary strength in the exchange value of 1977 sterling by relaxing exchange controls rather than by lowering interest rates? In that case, interest rates will never come down, with all the damage that that will do to industrial investment and productivity in the long term.
§ Sir G. Howe
The right hon. Gentleman must understand that the case for relaxation of exchange control stands fairly and squarely on its merits. The case for achieving lower interest rates is plainly equally desirable, but until the rate of growth of the money supply and public spending plans are brought under control it would be folly to reduce interest rates just for the sake of doing so.
§ Mr. Latham
Has my right hon. and learned Friend heard even the faintest whisper of pleasure from Labour Members about the decision of the building societies to postpone any increase in mortgage rates to 1 January next year, if indeed it ever happens at all?
§ Mr. Denzil Davies
Will the Chancellor confirm that if the growth in bank lending does not moderate in the next few months he will have no alternative but to put up interest rates in order to keep within the monetary targets?
§ Sir G. Howe
I would not expect that to happen, but I emphasise that the rate of growth of bank lending was one of the aspects of monetary expansion that was occurring when we took office, so we inherited this situation. All these measures that are necessary to restore control of the monetary balance of our economy are the responsibility, fairly and squarely, of the previous Government.