HC Deb 11 May 1995 vol 259 cc878-9
10. Sir Thomas Arnold

To ask the Chancellor of the Exchequer what is his latest estimate of spare capacity in the economy. [22215]

Sir George Young

There is no unique measure of spare capacity in the economy. But recent data and evidence from business surveys all point to strong growth in business investment this year.

The UK is experiencing a healthy well-balanced recovery, with falling unemployment and underlying inflation below 3 per cent. The Government's policies will ensure that economic growth is sustained with low inflation.

Sir Thomas Arnold

With three quarters of the economy outside manufacturing, will my right hon. Friend acknowledge that inflationary pressures remain subdued? Is it not ludicrous, therefore, to be talking about a boom-bust cycle and an interest rate increase to counter the threat of overheating?

Sir George Young

My hon. Friend is right. The Confederation of British Industry survey of capacity covered about a quarter of the economy. As for the other three quarters, to which my hon. Friend has referred, there are sectors in which there is clearly spare capacity, such as housing, construction and retail. We must examine the entire picture when we come to decisions.

Ms Primarolo

How does the Financial Secretary reconcile the Government's continued claim that the economy is in great shape with the Bank of England's view, as published today, that capacity constraints in manufacturing industry are prompting inflationary pressures? What do the Government intend to do about that conflict of interpretation?

Sir George Young

As the hon. Lady will have heard, the Governor has said that the economy is in better shape than it has been for many years. I do not agree, therefore, with the analysis that she has outlined. Investors would like to know where the Labour party stands on taxing, spending and borrowing. We have had no responses from Opposition Members for three quarters of an hour on key economic questions.