§ 13. Mr. Ashton
To ask the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.
§ Mrs. Hicks
Surely an encouraging combination of good news for business in the west midlands is the reduction in interest rates yesterday and the Gulf victory today. However, in defence of businesses in my constituency, does my hon. Friend agree that we still have a long way to go and that businesses need, above all, to 1108 plan for stability, confident in the knowledge that there will be further interest rate cuts as soon as possible and that we shall, in the process, conquer inflation?
§ Mr. Maples
I hear what my hon. Friend says. In the mid-1980s, investment by those businesses grew at a record rate, and the growth in the economy that resulted could not be sustained. I am afraid that one of the unfortunate facts of life is that those moves must be followed by a slow-down and it is necessary to keep interest rates high in order to bear down on inflation. We shall continue to pursue interest rate policies that are consistent with maintaining our position in the ERM.
§ Mr. Leighton
Did not the high interest rates show what a blunder it was to have joined the exchange rate mechanism, because interest rates can now no longer respond to the obvious needs of the domestic economy but must be used to prop up an uncompetitive and overvalued exchange rate, which will push the country further into recession and cause, in the coming months, an explosion of unemployment?
§ Mr. Maples
I sometimes wonder whether Opposition Members write such questions weeks in advance of Question Time. We have been able to reduce interest rates by 2 per cent. since we joined the ERM. The inflation-adjusted exchange rate of the pound against ERM currencies over the past 10 to 20 years shows that the rate at which we entered the ERM is close to the average inflation-adjusted rate over that period. The pound is not uncompetitive against the deutschmark. If it were, how could exports to Germany have risen by 171 per cent. last year?