HC Deb 04 June 1981 vol 5 cc1054-5
2. Mr. Richard Wainwright

asked the Chancellor of the Exchequer what are the most recently known rates of growth of the monetary aggregates M1 and PSL2, and whether he is satisfied with these trends.

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

M1 and PSL2 increased by 4.8 per cent., and1.8 per cent. respectively in banking April. Needless to say, all the monetary aggregates were heavily distorted by the effects of the Civil Service strike. In the six months prior to April, M1 and PSL2 had grown at an annual rate of 7.7 per cent. and11.5 per cent. respectively. Despite the distortions to which I referred a moment ago which will continue so long as the strike lasts, there is no reason whatever to doubt that underlying monetary growth is consistent with the Government's objectives.

Mr. Wainwright

Bearing in mind the fact that the distortions are real and that the increases just announced by the Financial Secretary are on top of a high starting base, when does he expect a higher rate of inflation to reflect the increases which he has just revealed?

Mr. Lawson

I am glad to know that the hon. Member accepts that the rate of inflation depends on the rate of growth of the money supply. That, at least, is an advance. However, if he pursues his studies a little further, he will find that month-to-month fluctuations have no effect on the money supply. Certainly nothing which lasted six months or less would have any effect.

Mr. W. Benyon

Will my right hon. Friend resist any advice to raise interest rates as a result of the temporary fall in the value of the pound?

Mr. Lawson

My hon. Friend is right. We shall judge the appropriate level of interest rates according to the underlying monetary situation and we shall not be affected by these temporary blips. Nevertheless, it is a matter of regret—indeed, something that I thought the whole House would deplore—that a spokesman for the Civil Service unions should have stated a fortnight ago that a deliberate purpose of the strike was to cause interest rates to be higher than they would otherwise be.

Mr. Skinner

Is it not time that the Financial Secretary and his colleagues admitted the truth—that their regulation of the economy, for what it is worth, has completely run out of control? Last year the right hon. Gentleman's excuse was the removal of the corset. This year it is withdrawal of labour symptoms. What will it be next year, assuming that the right hon. Gentleman is still in Government?

Mr. Lawson

Far from the policy being out of control, inflation is moving down very satisfactorily. However, I can assure the hon. Gentleman that the Civil Service strike is not an excuse. It is a reality which is harming millions of people.