§ 6. Mr. Teddy Taylorasked the Chancellor of the Exchequer what assessment he has made of the likely trends on inflation and interest rates over the next year.
§ The Chief Secretary to the Treasury (Mr. Leon Brittan)We do not publish forecasts of interest rates. With regard to inflation, the Financial Statement and Budget Report contained a forecast of 10 per cent. for the fourth quarter of 1981 and 8 per cent. for the second quarter of 1982. There is no reason to offer a new assessment at this stage.
§ Mr. TaylorDoes my right hon. and learned Friend agree that the best service that we can give the unemployed is to ensure that inflation and interest rates are as low as possible when the recovery comes? Does he also agree that the best service that we can give our children and grandchildren is to ensure that as low a proportion as possible of the PSBR is funded by index-linked bonds or savings certificates?
§ Mr. BrittanI agree with my hon. Friend's first proposition, but I cannot entirely agree with the second.
§ Mr. NewensIs the right hon. and learned Gentleman confident that the Government will resist the pressures that are afoot for a rise in interest rates, bearing in mind the tremendous damage that it would do not only to industry but to home owners and many others? Does he believe that that can be done without further cuts in public expenditure? What prospects does he see for a reduction in interest rates, which everyone accepts is essential for real recovery?
§ Mr. BrittanAs I have already said, we cannot predict interest rates. Our desire and policy to have lower interest rates have been made clear many times, and the action that we have taken to lower interest rates speaks louder than any words that we can utter. At the same time, however, it would be foolish to pretend that we can totally insulate ourselves from all the influences that may be brought to bear.
§ Mr. BudgenIs my right hon. and learned Friend aware that the decision to allow everyone to buy inflation-proofed bonds will be regretted in many quarters? In that it diminishes the pain of inflation, will it not also diminish the popular will to fight inflation and make borrowing more expensive and difficult for private borrowers who cannot offer the same advantages as the State offers when it lends?
§ Mr. BrittanMy hon. Friend may be under a slight misapprehension because of the nature of the announcement. We are talking about national savings certificates, not bonds. Therefore, some of what my hon. Friend said may not apply.
§ Mr. ShoreMay I come back to the trend in interest rates since the time of the Budget? We were informed at that time that MLR was 12 per cent. and that there would be further falls. Has the Chief Secretary noticed that the three-month interbank rate and other indicators are already over 14 per cent.? Effectively, therefore, interest rates are going up. Surely, the Bank of England has intervened to guide the market in that direction. How does that square with the forecast that was given at the time of the Budget, and what is the Government's attitude to the rise in interest rates?
§ Mr. BrittanThe right hon. Gentleman knows perfectly well that it is not the practice to comment on the day-to-day operations of the Bank of England. He also knows that the level of interest rates in this country compares extremely favourably with those in other countries. He knows, too, that it does not lie in his mouth to make criticisms about interest rates, because the policies that he has consistently put forward to the House would lead either to a massive increase in interest rates or to a massive growth in inflation, or probably both.