Inflation (Hansard, 10 May 1984)

§ 6. Mr. Kenneth Carlisle
asked the Chancellor of the Exchequer what is the latest forecast for the rate of inflation over the next 12 months.

§ Mr. Lawson
The latest forecast suggests retail price inflation will fall to around 4 per cent. by this time next year.

§ Mr. Carlisle
Does my right hon. Friend accept that we must keep the present low and stable rate of inflation if industry is to have the confidence to invest and provide jobs? Is it not disturbing, therefore, that material costs to industry have increased by over 8 per cent. in the last year, and is that not a timely reminder that we simply cannot relax our efforts in the fight against rising prices?

§ Mr. Lawson
I strongly agree with my hon. Friend's last point. That is indeed a central plank of the Government's economic policy. The increase in input prices to which he referred is largely a reflection of the rise in the value of the dollar, which means that certain commodities that manufacturers have had to import, particularly oil, have cost more. However, unit labour costs have risen very little, because of the large increase in the productivity of British industry generally and manufacturing industry in particular. Of course, considerable restraint must be imposed on pay increases, because the unit labour costs of some of our major competitors have actually fallen.

Mr. J. Enoch Powell
What will be the cause of this 4 per cent. inflation? Will it have anything to do with money supply?

§ Mr. Lawson
Yes.

§ Mr. Forman
Does my right hon. Friend agree that if he is to achieve his inflation forecast for the coming year it is vital to continue public sector pay restraint, especially in central and local government?

§ Mr. Lawson
Yes, that is indeed the case. The Government are anxious to keep a firm grip on public expenditure, of which public sector pay is an important part.

§ Mr. Ashton
Would not a massive cut in electricity prices bring down inflation even faster, keep jobs open in the coal industry and help industry in general? Should we not stop talking nonsense about coal industry support putting 1p on income tax when electricity is making massive profits? Does not any business man with surplus stocks cut the price to get rid of them? The Government should stop taxing electricity, when miners are being pushed out of work.

§ Mr. Lawson
Subsidies are no route to bringing down inflation. However, I agree with the hon. Gentleman that low-cost energy is important, and that means low-cost coal in particular.

§ Mr. Maples
Is my right hon. Friend concerned that the recent rise in interest rates, the continued strength of the dollar and the high level of private sector lending may have adverse consequences for inflation, or is he still confident about his forecast?

§ Mr. Lawson
I am never wholly confident about any forecast, although, as my right hon. and learned Friend the Chief Secretary has pointed out, the Treasury's track record is considerably better than those of most, if not all, outside forecasting bodies. To that extent, I am confident about the forecast. The money supply—both broad and narrow—is well within the target range. There is no cause for concern on that score. Focusing exclusively on bank lending, which is only one component of the money supply, is likely to lead to a mistaken conclusion.

§ Mr. Wrigglesworth
In view of the importance attached to the level of interest rates by the Chancellor and by this Administration, is not the point raised by the hon. Member for Lewisham, West (Mr. Maples) a bitter blow to the Government's strategy? Will not the forecast of higher interest rates lead to lower investment and higher prices, and what does the Chancellor intend to do about it?

§ Mr. Lawson
I have made no forecast of higher interest rates to come. Of course the recent increase in base rates is unwelcome, but it is not a bitter blow. There will always be fluctuations in interest rates if the Government are concerned, as this Government are, to maintain control of monetary conditions, especially in the light of what has been happening in the United States. We have been able to keep our interest rates well below those of the United States, but we cannot be wholly immune to what has been happening there. The hon. Gentleman asked about the prospect for investment. I was very glad to see that the most recent CBI forecast suggested that there would be a 7 per cent. increase in manufacturing investment this year.