HC Deb 19 June 1986 vol 99 cc1190-1
13. Mr. Meadowcroft

asked the Chancellor of the Exchequer what proposals he has for producing greater stability in the exchange rate.

Mr. Lawson

Since the Plaza agreement last year there has been a much greater readiness among the major powers to engage in concerted intervention as the need arises.

Mr. Meadowcroft

Is the Chancellor aware that a consistently voiced frustration in British industry concerns both the problems of exporting into Europe, because of' the capriciousness of the exchange rates within Europe, and the difficulties in developing a united European ability to compete against the Americans, again because the exchange rate within Europe is subject to fluctuations? When will he fix the point at which it is feasible and beneficial to join the European monetary system?

Mr. Lawson

I agree that fluctuations in the exchange rate, despite the ability to secure forward cover in most cases, can be irksome for British exporters. I am also glad to say that British exporters have been increasing their share of world markets over the past five years, for the first time in a long time. However, if British exporters took a firmer grip on their pay costs, as I said earlier, their success in export markets would be even greater than it has been.

Mr. Forman

I do not wish to repeat familiar Conservative arguments in favour of joining the exchange rate mechanism of the EMS at an early date, but does my right hon. Friend agree that, in any case, stability in interests rates and exchange rates would be greatly helped if there were further convergence in our national inflation rates and if every effort were bent to that end?

Mr. Lawson

I agree with my hon. Friend, and there is now a much greater convergence of inflation rates, not least because we have succeeded in getting our inflation rate down so dramatically. As for the EMS, even if we were to join it—there are undoubtedly arguments for doing so—that would not affect fluctuations against the dollar, and it is the dollar that has been far and away the most volatile of the major currencies.

Mr. Latham

As the exchange rate has been so stable recently, and as inflation is under 3 per cent., what is preventing a further fall in the general level of interest rates, which would do so much good to help the Government's counter-inflation policy?

Mr. Lawson

I know that my hon. Friend will welcome the fact that, in the three months since the Budget, interest rates have already fallen by 2½ per cent.