HC Deb 22 May 1980 vol 985 cc691-3
2. Mr. Latham

asked the Chancellor of the Exchequer whether he will make a statement on the progress of his programme to bring the money supply under control.

The Chancellor of the Exchequer (Sir Geoffrey Howe)

Since the measures of last November there has been a marked slowing down in the rate of monetary growth. In the last six months sterling M3 has grown at an annual rate of 6½ per cent.

Mr. Latham

That is welcome progress. However, does my right hon. and learned Friend accept that, although the timing must be for his judgment, it should be an urgent and substantial priority of Ministers to bring down the level of interest rates?

Sir G. Howe

I recognise the point that my hon. Friend makes. Indeed, I have made it myself on a number of occasions. However, we do not wish to see a move in that direction which cannot be justified by a movement of all the other factors in the monetary market.

Mr. Healey

Can the right hon. and learned Gentleman answer the question put to him by the president of the CBI on Tuesday, namely: if the right hon. and learned Gentleman boasts that he has the money supply under control, why is he keeping interest rates at this punitive level, particularly as they are having little or no effect on bank lending to private companies but a disastrous effect on the value of the pound, which rose 4 cents yesterday purely in response to relative interest rates between ourselves and the United States?

Sir G. Howe

The right hon. Gentleman should surely acknowledge that a far more significant factor in yesterday's movement of the exchange rate of the pound sterling was the movement in oil prices. I need no reminding from the right hon. Gentleman of the case that was made to me on Tuesday night for a reduction in interest rates as soon as possible. Interest rates are only one of the factors affecting bank lending. The increase in bank lending is still being sustained. We wish to see firm evidence of a reduction on that front before we can be entirely confident about the timing of interest rates.

Mr. Healey

Does the right hon. and learned Gentleman agree that those enormous and punitive interest rates are having little effect on the volume of bank lending but a disastrous effect on business liquidity and the value of the pound? Why is the right hon. and learned Gentleman sticking to the fetish that we must keep very high interest rates, when he boasts, rightly or wrongly, that he has the money supply under control?

Sir G. Howe

The right hon. Gentleman characteristically overstates almost every aspect of the argument. Interest rates are having an effect on bank lending. Bank lending is one of the facts about which one needs to have more confidence before one can be sure about the movement of the money supply. Interest rates will be coming down in due course.