Production: Bank of England Bulletin (Hansard, 20 July 1982)

§ Lord Hatch of Lusby
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Secretary of State for Trade (Lord Cockfield)
My Lords, activity is above the levels of the spring 751 of last year and, as the Bank of England's Quarterly Bulletin states, The likely prospect is for a modest rise of output in the rest of this year and continuing next year". The Government, and the majority of outside forecasts, support this view.

§ Lord Hatch of Lusby
My Lords, if the noble Lord would read my Question, he will see that I was referring not to spring but to last autumn. May I ask him two questions arising from the Quarterly Bulletin of the Bank of England? Does he agree with the two following quotations from the review? I can assure him—and I am sure he will accept this—that I am not in any way distorting the meaning, although I have to extract. The first is: Since last autumn, however, there appears to have been no increase, although the effect of exceptionally harsh weather around the turn of the year obscured the position. Surveys continue to suggest little early rise in production". Secondly—and, to me, most importantly—does the noble Lord agree with this extract from the bulletin: The weakening of commodity prices is seriously worsening the income and payments position of many developing countries. This, in turn, is tending to reduce their demand for imports from the advanced countries and is thus one of the elements contributing to the general weakness in prospect"?

§ Lord Cockfield
My Lords, if I may say so with respect, the noble Lord omitted a crucial word from the first quotation which he read. According to my account, it says: there appears to have been no further increase", which is a crucial difference. The important point is that there was a hesitation in the recovery during the winter, partly due to the bad weather, partly due to other causes, but since then the rise in output has resumed. This is why I also read the quotation from the Quarterly Bulletin to which the noble Lord referred, which says: The likely prospect is for a modest rise of output in the rest of this year". This is what we do believe to be the position. In fact, in the three months to May—the May figures were not available when the Quarterly Bulletin was written—manufacturing output increased by 1.7 per cent. compared with the corresponding three months in the previous year.
So far as the noble Lord's second question is concerned—the effect of weakening commodity prices on the economy of the developing countries—I agree that this is a serious matter. Weakening commodity prices are a reflection of recession. As we recover from the recession, and particularly as the United States recovers from the recession, one would expect to see a strengthening in commodity prices, to the benefit of the third world.

Lord Bruce of Donington
My Lords, while noting that the noble Lord appears to agree with the extracts which my noble friend has given from the Bank review, may I ask whether he is now in a position to answer the second part of my noble friend's Question as to what action Her Majesty's Government are taking towards increasing production?

§ Lord Cockfield
Yes, my Lords. While I do not dissent from what was said in the Bank of England's Quarterly Review, I did bring out the point that it is not a complete story and that since the review was written things have improved. So far as the second half of the noble Lord's Question is concerned, the Government are following a responsible fiscal and monetary policy which will lay the right foundation for a long-term expansion in output and employment. But a heavy responsibility rests also on both sides of industry.

§ Lord Beswick
My Lords, may I express my admiration to the noble Lord for his capacity for selecting favourable percentage figures. While I accept that there was an increase over a previous fall last year—something of the order of 1.9 per cent.—is it not also true that, compared with the period when the Government took office, manufacturing production has fallen by 5.6 per cent?

§ Lord Cockfield
My Lords, the fall in manufacturing production since the Government took office is due to two major factors: first, the world recession and, secondly, the loss of competitiveness in British industry, built up over a long period of time, due to wage increases greatly exceeding the increase in productivity.

Lord Winstanley
My Lords; is the noble Lord aware that some of us are becoming increasingly alarmed by the frequency with which the noble Lord claps his telescope to his blind eye and sees a false dawn on some remote horizon, a dawn which is not seen by the CBI, the City, the bankers, the economists or anybody else? May I suggest very humbly—

Several noble Lords
No!

Lord Winstanley
Then may I ask the noble Lord whether he will try the other eye and see things as they really are?

§ Lord Cockfield
My Lords, I was not aware that clapping telescopes to blind eyes was a traditonal way of seeing the dawn. In fact, I would have commended to the noble Lord the use of both of his eyes.

§ Lord Beswick
My Lords, since the noble Lord says that so much of our trouble is due to wage increases, could he give us any idea of the amount of money which was borrowed over the last 12 months simply to pay the interest on money which had previously been borrowed and not for putting into new equipment?

§ Lord Cockfield
My Lords, I am always grateful to the noble Lord for his drawing attention to the profligacy of Governments over a very long period of time in spending much more money then they raise in revenue, thereby producing a large public sector borrowing requirement. As the noble Lord will remember, it has been part of the Government's policy to reduce the public sector borrowing requirement.

§ Lord Beswick
My Lords, would not the noble Lord agree that I was not talking about the public sector? 753 Although the present Administration do have to borrow in order to pay the interest on the money which has already been borrowed, I am referring to the private sector. Is it not a fact that too much of the money that is borrowed from the banks does not go into new equipment but simply goes towards paying the interest on money already borrowed?

§ Lord Cockfield
My Lords, if the noble Lord is talking about the private sector, then the answer to him is that interest rates are unduly high, due in large measure to the tendency of Governments all over the world to spend too much money, which means that they have to borrow too much money.

§ Lord Hatch of Lusby
My Lords, will the noble Lord accept that I did not omit the word "further" from the quotation which I gave? When the Bank says that there has been no further increase since the autumn it is referring to a rise of three-quarters per cent. during the second half of last year. I did quote the full quotation from the Bank's report. But may I ask him in particular to address himself to the second part of the second quotation which I gave, concerning commodity prices? Will the noble Lord note that the Bank reinforces the argument which has come constantly from these Benches: that the weakening of commodity prices and the worsening of the income and payments position of developing countries is in turn tending to reduce their demand for imports from advanced countries? This is the essence—

§ The Lord Privy Seal (Baroness Young)
My Lords, the noble Lord, Lord Hatch of Lusby, must ask a question, and ask it briefly, and not make a statement at Question Time.

§ Lord Cockfield
My Lords, if I misheard the noble Lord, Lord Hatch of Lusby, I am sorry; but, so far as commodity prices are concerned, I dealt with that matter very fully in my reply to his supplementary question.

§ Lord Leatherland
My Lords, can the noble Lord the Minister say, as he said that interest rates are unduly high, whether the Government or the Bank of England have any plans in mind for reducing them this week?

§ Lord Cockfield
My Lords, interest rates have been coming down. They have fallen by something like three to four percentage points from the peak. We hope that as borrowing is restrained the fall in interest rates will continue.

§ Lord Leatherland
Yes, my Lords, but that does not answer my question. My question was whether the Government or the Bank of England were proposing to reduce interest rates this week, as has been suggested is likely to be the case in many organs of the press.

§ Lord Cockfield
My Lords, the noble Lord, Lord Leatherland, is wise enough to know that no Minister would ever answer a question of that kind.

§ Lord Whaddon
My Lords, in view of the—

§ Baroness Young
My Lords, we have now spent 10 minutes on this Question and I think it would be the wish of the House to move on to the next.