Interest Rates (Hansard, 25 April 1985)

§ 13. Mr. Latham
asked the Chancellor of the Exchequer what proposals he has for reducing the level of interest rates.

§ Mr. Lawson
The Government's policy is to maintain monetary conditions that will bring inflation down. Short-term interest rates will be held at the level needed to achieve this. However, my hon. Friend will have noted that in the five weeks since the Budget base rates have fallen by 1½ per cent.

§ Mr. Latham
Will my right hon. Friend confirm that although short-term interest rates will obviously have been affected by the extraordinary fluctuations in the exchange rates during the past few days and weeks, it is still the Government's general objective, in the interests of industry and employment, to reduce interest rates as much as possible as market conditions permit?

§ Mr. Lawson
My hon. Friend is correct. That is one of the reasons why we have consistently followed a policy of having a low public sector borrowing requirement. This year's PSBR is predicted to be as low as 2 per cent. of GDP. I am sure my hon. Friend will agree that any reduction in interest rates must be consistent with what is necessary to maintain downward pressure on inflation.

§ Mr. Robert Sheldon
Will the Chancellor of the Exchequer take note of the fact that when the pound is low interest rates rise rapidly to a high level, but that when the pound is high they do not come down anything like as rapidly? What can he do to rectify that asymmetry?

§ Mr. Lawson
There has been a rise in the sterling exchange rate since the Budget, but, as I pointed out a moment ago, in the five weeks since the Budget there has been a fall in short-term bank base rates of 1½ per cent.

§ Mr. Gerald Howarth
Does my right hon. Friend agree that the proposals now being trailed by the Labour party in advance of next week's council elections — issuing blank cheques left, left and left — will undoubtedly have the effect of increasing interest rates enormously as a result of the impact that they will have on the public sector borrowing requirement, and that therefore these hollow and spurious promises are a disincentive to employment?

§ Mr. Flannery
Of course the right hon. Gentleman agrees.

§ Mr. Lawson
Of course I agree with that, as the hon. Member for Sheffield, Hillsborough (Mr. Flannery) said with his usual prescience. It is well known throughout the country that the Labour party is the party of inflation. As if that were not bad enough, inflation invariably means higher interest rates.

§ Mr. Blair
Is the Chancellor aware that his answers on exchange rate and interest rate policy have all the clarity of a riddle from the delphic oracle? Is he aware, as all parts of industry are saying to him, that what is punishing is the level of interest rates combined with uncertainty and instability in our exchange rate policy? Is it not time that we listened to those in industry who are trying to succeed, rather than to those in government who have patently failed?

§ Mr. Lawson
The great thing is that there is certainty about the Government's policies. That is what the Opposition do not like. For six years we have consistently stuck to the policies which we said in 1979 we would bring into force. They have succeeded in bringing down inflation and in us having the highest level of output, the highest level of productivity, the highest living standards and the highest level of investment ever.