HC Deb 27 October 1983 vol 47 cc419-20
11. Dr. McDonald

asked the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.

Mr. Lawson

The recent reduction in the clearing banks' base rates to 9 per cent. means that they have fallen 7 points from their last major peak in October 1981, and are now back to their lowest level of the last five and a half years.

Dr. McDonald

Nevertheless, real interest rates are still quite high. Is there not scope for reducing interest rates further to enable industry, and in particular industry conducted by small and medium-sized businesses, to invest and expand further?

Mr. Lawson

I agree with the hon. Lady about the desirability of lower interest rates, and the Government's medium-term financial strategy, based on a steady decline in the growth of the money supply and in the PSBR as a proportion of GDP, is designed, inter alia, to achieve that end, and 'that is what has been happening.

Mr. Latham

Are not mortgage interest rates at least 1 per cent. too high, and should they not come down next week, and not next month?

Mr. Lawson

I read in the papers that there was a possibility that the building societies would decide to reduce their mortgage rates and if that is so, I am sure that the House will welcome it. It is interesting to note that, even at the present level, mortgage rates are lower than they were when this Government first took office.

Mr. Robin Cook

Did the Chancellor notice yesterday's statement by the United States' Treasury Secretary that although we shall hear much about the connection between Government deficits and interest rates, we shall see no hard data? In view of the Government's anxiety not to disagree with the United States Administration, will the Chancellor take this opportunity of agreeing with the American Treasury Secretary that there is no discernible connection between Government deficits and interest rates and all that the House has heard on this matter in the past four years has been so much monetarist mumbo-jumbo?

Mr. Lawson

I agree with Paul Volcker, the chairman of the Federal Reserve Bank, and with Mr. Martin Feldstein, the chairman of the Council of Economic Advisers in the United States, that there is a clear and direct connection between the size of the budget deficit and the level of interest rates.