HC Deb 12 March 1998 vol 308 cc745-7
14. Mr. Alan W. Williams

What assessment he has made of the correlation between the boom and bust phases in the economic cycle and the value of the pound, and the time lag involved. [32506]

Mr. Darling

There is no simple relationship between the economic cycle and the exchange rate. The Government's policies are designed to end the cycle of boom and bust, and to create conditions for sustained growth and high employment.

Mr. Williams

My hon. Friend and the Treasury team keep telling us of the importance of stability in bringing about an end to boom and bust cycles, but such stability will be impossible given the current high exchange rates, because manufacturing industry is being crippled by the high value of the pound. Does he agree that part of the Treasury's job is to create an economic climate in which interest rates could fall to 3 per cent., like those of our European partners, and the pound could fall in value to DM2.60 or DM2.70, so that in five years it would be possible to join the single currency?

Mr. Darling

I understand my hon. Friend's point, but as I told the House earlier, the most important thing for the Government is to ensure that we have the right economic conditions for a stable economic platform on which to build and so that we will achieve low inflation. That is what manufacturing industry—and everyone in the country—wants. As I said earlier, there are already encouraging signs that, because of our reforms—not just the measures in my right hon. Friend's Budget last year but as a result of a general feeling of confidence in the Government's commitment to stability and the reforms that we have made to the Bank of England—long-term rates are now falling. I repeat—they are the lowest they have been for 33 years. I believe that the path on which the Government have embarked is the right path, and the only path in the long-term interests of this country.

Dr. Cable

Does the right hon. Gentleman accept that it was concern about economic stability that led 11 countries to prepare themselves for first-wave entry into EMU? Does he welcome the fact that as many as 11 countries are now ready? Will he tell us what economic policy decisions those 11 countries will be party to as members of the euro X committee to which Britain will not be a party?

Mr. Darling

The hon. Gentleman is aware that the decision about who will join EMU will be made during April and May. As my right hon. Friends the Chancellor and the Prime Minister have made clear, we want to ensure that if monetary union goes ahead, it is a success, because that must be in the interests of the whole of Europe and this country. Whether we are in or out, what happens in EMU will affect us. As my right hon. Friend the Chancellor made clear, we are beginning to put in place the necessary steps to ensure that this country can make a genuine and real choice about whether we join at the appropriate time.

Sir Peter Tapsell

Has the right hon. Gentleman noted that, even after two centuries of theorising and libraries packed with books on economics, Governments still have remarkably little influence on the trade cycle? The one thing that does seem to be indicated by history is that, if one gets into difficulties, it is easier to get out of them with a floating currency rather than a fixed currency.

Mr. Darling

I remember sitting more or less where the hon. Gentleman is sitting some years ago listening to a 45-minute speech from him on that very point. I am well aware of the hon. Gentleman's views, and I note them with great interest.

Dr. Lynne Jones

Does my right hon. Friend agree that raising interest rates is not the only way to deal with inflationary pressures in the economy? Will he assure the House that other methods will be sought in the forthcoming Budget?

Mr. Darling

All sorts of pressures lead to inflation, including wages and general economic conditions. I shall repeat an important point; it is in the interests of this country—every single one of us, whether in industry or not—to ensure that we have low inflation and that we get away from the damaging cycle of boom and bust that has bedevilled this country for most years since the war. We are determined to avoid that, and everything we do will be geared towards that end.