Inflation (Hansard, 25 April 1985)

§ 7. Mr. Andrew MacKay
asked the Chancellor of the Exchequer if he will make a statement about the current level of inflation.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
Over the 12 months to March 1985, the retail prices index increased by 6.1 per cent.

§ Mr. MacKay
Will my right hon. Friend confirm that that figure does not take into account the latest increase in mortgage rates? Does he agree that that increase was premature and misguided, bearing in mind the way in which interest rates elsewhere have fallen since then?

§ Mr. Lawson
My hon. Friend is right to say that the most recent increase in the mortgage rate does not come into effect until — I believe — 1 May and that it is therefore not included in those figures. As I made clear at the time of the Budget, we expect inflation to be above 6 per cent. for the next few months before falling to 5 per cent. by the end of the year and below 5 per cent. next year.
Decisions taken by building societies on interest rates are a matter for them.

§ Mr. Wainwright
As to the Chancellor's financial strategy against inflation, does he find appropriate the present combination of the money growth rate and the exchange rate, or in what direction would he wish to see it adjusted?

§ Mr. Lawson
I do not have it in my power to determine the exchange rate, as the hon. Gentleman will be aware, but I have some influence over the level of interest rates. As he is a distinguished member of the Treasury and Civil Service Select Committee, the hon. Gentleman is aware that the Government's policy is, taking exchange rates and interest rates into account, to maintain a steady downward pressure on inflation.

§ Mr. Squire
Will my right hon. Friend confirm that the growth rate in the economy this year is among the highest, if not the highest, in Western Europe? Does he regard that as coincidental and commensurate with our existing rate of inflation?

§ Mr. Lawson
My hon. Friend is right. The reduction in inflation has assisted the steady growth which we have secured for nearly four years. We have had four years of steady growth at 2.5 per cent. and expect 3.5 per cent. growth in the current year. That is likely to be the highest rate of growth in the European Community and, to judge from the first quarter figures in the United States, it might be higher than growth in the United States as well.

§ Mr. Fatchett
When does the Chancellor expect to achieve the Prime Minister's forecast of inflation? When will it be down to the Prime Minister's figure?

§ Mr. Lawson
In due course.

§ Mr. Powley
Although we all agree that it is important to maintain and, if possible, reduce the present level of inflation, does my right hon. Friend agree that it is just as important to compare our rate of inflation with the rates of our competitors and ensure that our level of inflation is below theirs, thus putting our industry and commerce in a better competitive position so that we may improve our exports?

§ Mr. Lawson
My hon. Friend is right. It is essential, for many reasons, to get inflation falling steadily and to get it as low as possible. One of those reasons is the rate of inflation experienced by our competitors. It is interesting to compare our rate of inflation now with the average rate of 15.4 per cent. a year throughout the lifetime of the Labour Government.

§ Mr. Haynes
The Chancellor says that he has no power over exchange rates, but he has power over inflation. When will he fulfil some of the promises which he keeps making when he travels the country — [Interruption.] Why do Tory Members not keep quiet? Is the right hon. Gentleman aware that industry cannot plan for the future with inflation bobbing up and down as it is? The right hon. Gentleman may laugh, but the levels of inflation show that he is the worst Chancellor that the country has ever had.

§ Mr. Lawson
rose—

§ Mr. Haynes
I have not finished yet. When will he retire to the plush area of Blaby and insignificance so that we may have somebody in his post who knows what to do?

§ Mr. Lawson
I am most grateful for the plug that the hon. Gentleman has given my constituency. Blaby is indeed a place well worth visiting and I hope that he will do so. As for the rate of inflation, during the period that I have been Chancellor it has been a good deal lower than for a long time, including under a Labour Government when it was 15.4 per cent. on average and never for one month reached its present level.

§ Mr. Kenneth Carlisle
Does my right hon. Friend agree that increased productivity helps to keep inflation down? In that respect, does he agree that, since 1980, our productivity has increased by 3 per cent. a year—a far better performance than during the 1970s? Does he agree also that it is important to maintain that improvement for the fight against inflation?

§ Mr. Lawson
The growth in productivity, especially in manufacturing industry, is extremely welcome and it has a major impact on the country's competitiveness. That is important. On the whole, the economy is doing extremely well. There are two areas of great concern and they are not unconnected. One is the level of unemployment, about which I and all of my hon. and right hon. Friends are anxious—there are measures in the Budget designed to help with that—and the other is the level of real wage increases and wage costs per unit of output, on which we are not doing as well as our competitors.

§ Mr. Terry Davis
Is there any level of unemployment that is not unacceptable in the pursuit of the target of 3 per cent. inflation?

§ Mr. Lawson
It is a matter not of what level of unemployment is acceptable or unacceptable, but of what measures are best calculated to bring down the rate of unemployment. This is a problem not just for the United Kingdom but for the whole of western Europe. I am confident that the policies that we are pursuing are best calculated for that purpose.