§ Lord Bruce-GardyneMy Lords, I beg leave to ask the first Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what was the annualised rate of growth of £M3, PSL2 and M1, respectively, over the latest period of three months for which figures are available.
§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)My Lords, over the three banking months February, March and April 1984 sterling M3—The measure of broad money used for target purposes—grew by about 7½ per cent. at an annualised rate on its new definition, excluding public sector deposits. PSL2—which is not a target aggregate for the 1984–85 target period, although its behaviour is taken into account when assessing monetary conditions—grew at 15¾ per cent. annualised. M1 grew by about 24¼ per cent. annualised. As explained in the Medium Term Financial Strategy the behaviour of Ml has been increasingly difficult to interpret, and there is no target for Ml for 1984–85.
§ Lord Bruce-GardyneMy Lords, I am most grateful to my noble friend for that information. Bearing in mind the advice of my right honourable friend the Chancellor that, over the medium term, domestic inflation is determined by the performance of the monetary aggregates, would my noble friend go so far as a Treasury spokesman was quoted after the publication of these figures last week of saying that there was no evidence from the domestic monetary aggregates to suggest a need for action on interest rates?
§ Lord CockfieldMy Lords, so far as the point made by my noble friend is concerned, the Government's policy on monetary matters is set out in detail in pages 4, 5, 6 and 7 of the Financial Statement. To turn to the future of interest rates, it is not the policy of the Government to forecast movements in interest rates.
§ Lord KinnairdMy Lords, can the noble Lord the Minister please explain—because I do not understand and I think a great many do not—what we are talking about?
§ Lord CockfieldMy Lords, I have no responsibility for the Questions that are tabled on the Order Paper; I merely do my best to answer them. If, however, my noble friend wishes to pursue these exotic matters, he will find a genealogical table setting out the relationship between the various components of the 1402 monetary aggregates on page 79 of the latest issue of the Bank of England Quarterly Review, a copy of which he may obtain from the Printed Paper Office.
§ Lord DiamondMy Lords, it is all very well for the Minister—a Cabinet Minister—to call these figures, and the study of these figures, exotic, but would it not be correct to say that he supports the Government's policy of placing great reliance on some of these figures in assisting the Government with their unemployment policies?
§ Lord CockfieldMy Lords, it is essential to follow a responsible financial and monetary policy. This is particularly important in relation to the health of the economy and of unemployment. This in fact is what we are doing.
§ Lord BeswickMy Lords, is it by design or coincidence that when targets fail to be reached each of these pieces of terminology in turn has been discarded for a new one, and that in fact we now talk mostly about MO and not about any of these three aggregates? How long will it be before MO is superseded by something else?
§ Lord CockfieldMy Lords, the noble Lord takes an excessively simplified view of the situation. If he reads the Financial Statement, he will find that two of the aggregates are targeted; MO for narrow money, and sterling M3 for broad money.
§ Lord BeswickMy Lords, I know what the targets are. I am suggesting, however, that in no case have they been reached.
§ Lord CockfieldMy Lords, in no case have the targets been breached?
§ Lord BeswickReached.
§ Lord CockfieldReached. This is not the position because last year most of the aggregates were in fact within the target range.
§ Lord Bruce-GardyneMy Lords, may I press my noble friend on perhaps a rather less exotic indicator; namely, the remarkably exuberant progress of bank lending to the personal sector. Does that not in turn suggest that there may be something rather excessively expansive over current credit conditions in the economy?
§ Lord CockfieldMy Lords, at the moment the monetary aggregates are moving in a perfectly satisfactory fashion. If one takes MO, for example, the change in banking, April on a 12-month annualised basis was 4¾ per cent.; on a six-month annualised basis it was 4 per cent. and on a three-month annualised basis it was 2¾ per cent. There is a similar decline over this period if one looks at sterling M3.
§ Lord Nugent of GuildfordMy Lords, am I right in thinking that my noble friend and his right honourable colleagues are trying to set a course which will set our domestic interest rates as low as possible without the pressure on our financial economy being such, due to the movement of international funds, that we shall 1403 depreciate the relationship of sterling to the dollar currency and thus increase the cost of our exports? Is he aware that this is a very nice balance to keep which, considering the interest rates here are some 3 or 4 per cent. below those in the United States, has been successfully maintained up to date?
§ Lord CockfieldMy Lords, I entirely appreciate the points that my noble friend makes. The forecast of the growth of the various monetary aggregates over the period covered by the medium term financial strategy shows a steady decline and the control of the monetary aggregates is one of the major factors in keeping the economy on a healthy growth path.