HC Deb 18 January 1990 vol 165 cc398-9
8. Mr. Kirk wood

To ask the Chancellor of the Exchequer what is his latest target for MO.

Mr. Ryder

One to 5 per cent.

Mr. Kirk wood

Instead of the Treasury ministerial team hiding in their pre-Budget bunker, which must be the most archaic and arcane way imaginable of developing any democratic country's economy, will the hon. Gentleman explain why the Government are paying no attention to the credibility of their anti-inflationary policies—given that MO, which is the cornerstone of that policy, is so sadly and stubbornly off target? Why do not the Government make an effort to restore credibility in their anti-inflationary policies with an early announcement of Britain's entry into the exchange rate mechanism?

Mr. Ryder

MO has been declining for the past year. At this time last year it was 7.4 per cent. I remind the hon. Gentleman that the last party but two of which he was a member, was prepared to support a Labour Government in the late 1970s, when MO was 13.1 percent., a far higher figure than today. MO is one indicator that the Government take into account when formulating base rate policy.

To answer the hon. Gentleman's latter question on the European monetary system, we have made it clear that we shall enter that system when the conditions set out at the Madrid summit have been met.

Mr. Gow

Does my hon. Friend agree that the present level of inflation has been caused by excessive monetary growth between 18 months and two years ago? Will my hon. Friend take the opportunity to reaffirm his belief that inflation is a disease of money, and that he will persevere with his policy of high interest rates?

Mr. Ryder

Yes, Sir. Inflation is caused by demand exceeding supply, and my hon. Friend reminds the House of the problems that arose—as a result of a monetary policy that was looser than it should have been after the Wall street crash.

Mr. Cohen

Are the Government planning a tight monetary policy with perhaps higher interest rates to force up unemployment, as an unofficial incomes policy?

Mr. Ryder

There is no question of there being an incomes policy. We never hear whether the Opposition want lower or higher interest rates. Opposition Front Bench spokesmen have no monetary policy.

Mr. John Townend

Will my hon. Friend confirm that, to achieve the conditions under which interest rates can be brought down, it is necessary to reduce the increase in MO and the increase in broad money?

Mr. Ryder

My hon. Friend is correct that broad money—M4—is another indicator that must be taken into account when formulating monetary policy.

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