HC Deb 12 July 1984 vol 63 cc1347-8
7. Mr. Forman

asked the Chancellor of the Exchequer if he will make a statement on the prospective rate of inflation.

Mr. Lawson

I expect inflation to decline further from its present low level of 5 per cent. As my hon. Friend knows, the Government's ultimate objective is stable prices.

Mr. Forman

In view of the recent unwelcome rise in interest rates, which is particularly unwelcome to house buyers and sections of British industry, does my right hon. Friend recognise that it is now even more important to achieve stability in prices, and that the sooner that is achieved the better it will be for our economy?

Mr. Lawson

I agree with my hon. Friend. It will, of course, take some years to achieve that stability in prices, but we are determined to get there.

Mr. Wainwright

Is the right hon. Gentleman aware that commentators and others now agree that there is a serious risk of a rise in the inflation rate this autumn, and that earnings are rising at virtually double the current rate of inflation? Is not the only way of reducing unemployment to start a selective reflation, protected by a decentralised incomes policy?

Mr. Lawson

I know that the hon. Gentleman's view is deeply cherished by the Liberal party, but it is a recipe for inflation, and for industrial distortions and inefficiencies. The plain fact is that inflation is well on track, although in the short run the RPI will unfortunately be affected by the increase in mortgage rates, which I regret. I hope, however, that the present high interest rates and the increase in mortgage rates will be relatively short-lived.

Mr. Beaumont-Dark

Does my right hon. Friend agree that the plight of sterling has nothing to do with internal factors, and that that is why the 3 per cent. increase in interest rates is an unwelcome response? Does he not agree that it would have been better to encourage the exchange rate to bear the burden and the risk, instead of endeavouring to change a policy that has been so successful on the inflationary front at home

Mr. Lawson

My hon. Friend is, unaccustomedly, slightly mistaken. The pressure was not on sterling. Indeed, as I mentioned earlier, the rate of exchange against the deutschmark has moved only slightly. The pressure was on domestic money market interest rates at home, and it was to that pressure that the clearing banks were forced to respond.

Mr. Ashley

The Chancellor said that inflation was well on track. Can he also say that unemployment is well on track? Having manoeuvred himself into the position of having to choose between inflation and recovery, will he tell us whether he regards mass unemployment as a greater evil than gentle inflation?

Mr. Lawson

Inflation is seldom gentle. I assume that the previous Labour Government sought to achieve the right hon. Gentleman's objective of gentle inflation; but, while they were in office, inflation rose to 26 per cent.—which is anything but gentle—and we have had the task of struggling to bring it down. Not only did the Labour Government see inflation running at that level, but they saw unemployment double. That was not because they wished it to do so, but because they were suffering from the delusion that inflation and unemployment are alternatives to each other, whereas in fact they go hand in hand. One of the key reasons for bringing down inflation is the achievement of conditions in which unemployment can also fall.

Mr. Terry Davis

Let me bring the Chancellor back to what is happening under his stewardship. If he is so confident that the rate of inflation will fall, despite higher interest rates and higher import prices, will he tell us which factors will be involved?

Mr. Lawson

Import prices have not been rising. They have been falling in sterling terms because of the decline in commodity prices. There is also every sign that seasonal food prices, which weigh heavily in the index, will fall. Furthermore, the Government will persist in their firm grip on the money supply, which has brought inflation down to its present level of 5 per cent. and will continue to bring it down.