HC Deb 02 July 1981 vol 7 cc991-2
2. Mr. Soley

asked the Chancellor of the Exchequer, whether he has any proposals to reduce the rate of interest in the near future.

14. Mr. Ashley

asked the Chancellor of the Exchequer when he next proposes to take steps to reduce interest rates.

The Chancellor of the Exchequer (Sir Geoffrey Howe)

It remains our objective to allow interest rates to fall further, but only as and when circumstances permit. United Kingdom interest rates are now lower than those in most other industrial countries.

Mr. Soley

With the advantage of hindsight, does the Chancellor think that his tight money policy, which pushed up interest rates and attracted short-term foreign funds into an overvalued sterling, was largely responsible for the drastic domestic collapse of the British economy?

Sir Geoffrey Howe

I do not accept that for one moment. With the advantage of hindsight I would say that the relative movement of United Kingdom and other countries' interest rates during the first half of the year represented an endorsement of the fiscal stance that I adopted in the Budget.

Mr. Higgins

Does my right hon. and learned Friend think that MLR serves any useful purpose? Does he have any proposals for abolishing it?

Sir Geoffrey Howe

As I explained in my Budget Statement, it is our intention to enable market forces to play a greater role in determining interest rates. Discussions on further improvements in monetary control are well advanced. The Bank has issued the final draft of the detailed provisions. When these are put into effect we shall aim to keep short-term interest rates within an unpublished band. It may then be appropriate to suspend the practice of publishing the MLR.

Mr. Richard Wainwright

As the Chancellor will still intervene on interest rates whatever may happn to MLR, what is the main factor in his policy on interest rates? Is it the exchange value of sterling, the behaviour of national income or the movement of monetary aggregates?

Sir Geoffrey Howe

The factors that have an effect on interest rates are described in my Budget Statement. They are dependent primarily on monetary considerations. As the hon. Gentleman knows, we do not have a target for the exchange rate. We believe that that should be determined principally by market forces.

Sir William Clark

Does my right hon. and learned Friend agree that if the borrowing requirement were to be increased, that would lead inevitably to increased interest rates?

Sir Geoffrey Howe

I agree entirely with my hon. Friend. That is the experience in other countries where interest rates are significantly higher than in the United Kingdom. One of the contributory causes is the extent to which borrowing in those countries is higher than it is here.