§ 7. Mr. David Marshall
asked the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.
§ 16. Mr. Fatchett
ased the Chancellor of the Exchequer if he will make a statement on the current level of interest rates.
§ Mr. Marshall
The Chancellor continually states that this country has a strong, sound economy. Does he agree that that is also true of West Germany and Japan? Why are our interest rates 3.5 per cent. and 6 per cent. higher than theirs? Does the right hon. Gentleman agree that lower interest rates would give our industry and economy a much needed boost? Will he therefore substantially reduce interest rates now?
§ Mr. Lawson
As the hon. Gentleman is aware, I reduced interest rates only last week. As for comparisons with Germany and Japan, I would make two points. First, although the rate of inflation is low in this country, in Germany and Japan it is pretty close to zero. That, of course, enables them to have lower interest rates. Secondly, the strength of the British economy is indicated by matters which I should have thought were important to the hon. Gentleman: we have the fastest rate of economic growth and the fastest decline in unemployment of all the major nations.
§ Mr. Fatchett
Further to that reply, when British industry is faced with historically and comparatively high interest rates in real terms, why has the Chancellor not taken the advice of British industry — the CBI, for instance—and reduced interest rates? If he did so, he would protect the real economy and jobs in British industry.
§ Mr. Lawson
I assure the hon. Gentleman that the CBI is content with the conduct of British economic policy under this Government. At the time of the election it was scared stiff that there might be a change of Government, leading to the disastrous economic policies of the Labour party.
§ Mr. Latham
Although my right hon. Friend will prudently decide the matter, will he confirm that the conditions which required a rise in interest rates in August no longer obtain?
§ Mr. Nicholas Winterton
Does my right hon. Friend the courageous Chancellor of the Exchequer agree that, although it may be helpful for interest rates to be reduced, British industry is more bullish and optimistic than it has been for 15 years?
§ Mr. Lawson
My hon. Friend is clearly correct. The point that he raised was shown in a series of surveys by the CBI, the most recent of which was published only this week. Of course, one of the things about which British industry is confident, quite apart from the Government's general economic policies, is the fact that we now have a period of much greater stability in exchange rates than we had in the past. It is true that, in recent days, as a result of the financial problems in the United States, there has been some pressure on the dollar, but I believe that, despite that, we can secure a greater degree of stability in exchange rates—we must seek to do that—than we have had for many years.
§ Mr. Chris Smith
The Chancellor will know that, despite last week's 0.5 per cent. cut in base rates, interest rates have been at an unprecedentedly high level throughout the lifetime of the Government. Now that the Government have abandoned monetarism, which was the supposed reason for that level, why does he not take this opportunity to stop dithering, cut interest rates, help industry, business and mortgage holders by doing so, and also help to calm the markets?
§ Mr. Lawson
I shall see to it that interest rates are at whatever level is appropriate in the conditions. As for this Government's record compared with that of the last Labour Government, I have to tell the House that bank base rates, which are now 9½ per cent., were 12 per cent. when we inherited the conduct of this country's government from the Labour party.
§ Mr. McCrindle
If, as now seems likely, we are heading for a reduction in interest rates—welcome though that may be in many ways — is my right hon. Friend concerned that, in turn, it may also lead to an increase in the availability of credit? As some commentators believe that that is already at a particularly high level, has he any steps in mind to control it?
§ Mr. Lawson
My hon. Friend is right to point to the general buoyancy of financial conditions some little while back. That was one of the main reasons why I thought it right to increase interest rates by a point on 6 August. However, since then, particularly in the events of the past fortnight, I think that it is clear that the rather frothy state of the financial markets has come to an end. There is now likely to be a dampening effect on economic activity, including credit activity. Therefore, it was appropriate to reduce interest rates by ½ per cent. last week. The conditions to which my hon. Friend referred are indeed different from what they were earlier.