Economic Recovery: Forecasts (Hansard, 15 July 1991)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
My Lords, the timing of turning points in the economy cannot be forecast precisely, though it remains though the Government's view that the recovery should begin in the second half of the year and gather momentum in 1992.

§ Lord Ezra
My Lords, is the noble Lord aware that many forecasts have been made about the start of the recovery? In fact, in March of last year the Government were estimating that it would start in the first half of the year. The noble Lord is now suggesting that it should begin in the second half of the year. Is he aware that the Engineering Employers Federation takes a rather more pessimistic view and thinks that its members, who represent a large part of manufacturing industry, will still see a fall in their activity in the first half of next year? In those circumstances, do the Government not agree that they should accelerate recovery by introducing further cuts in interest rates and by stimulating more investment in industry?

§ Lord Henley
My Lords, we shall make further cuts in interest rates as and when we are able. The noble Lord draws the attention of the House to other forecasts of growth in the latter half of this year and next year. We remain of the view that there will be growth next year. Our figures show growth next year of some 2.1 per cent. Some forecasts suggest higher estimates of growth; others suggest lower estimates. I can give the noble Lord one estimate of 1.9 per cent. which is achieved from an average of 26 independent forecasts. Some have forecasted much higher estimates of growth. The most optimistic is that from the Henley Centre for Forecasting, with which I have no connection, which forecasts growth of 3 per cent.

§ Lord Barnett
My Lords, apart from the forecast from the Henley Centre, what other evidence are the Government using to forecast an upturn at the end of the year? What will be the source of that recovery? If it comes primarily from domestic consumption, how does the noble Lord think the Government will be able to sustain it, given the current balance of payments deficit?

§ Lord Henley
My Lords, there are many signs that the recovery is on its way. Inflation was down to 5.8 per cent. in May and was 5.8 per cent. in June, after peaking at 10.9 per cent. during last September and October. I can also say that an EC Gallup survey shows consumer confidence on a slowly rising trend and retail sales prices in the past three months are I per cent. up on the previous three months. Further, the results of a recent CBI survey point to an improving trend in business confidence.

§ Lord Hailsham of Saint Marylebone
My Lords, is it not possible that the end of the recession would he brought closer if we all stopped talking ourselves into a state of gloom and tried to instil a note of confidence and optimism into our public utterances?

§ Lord Henley
My Lords, I totally agree with my noble and learned friend. I should like to remind him of the words used by President Roosevelt many years ago when talking about a recession in another age. He said that there was nothing to fear but fear itself.

§ Lord Jenkins of Putney
My Lords, when will the Government indicate their confidence in the recovery by announcing the date of the next general election?

§ Lord Henley
My Lords, that is another question. The date of the next general election is not a matter for me.

§ Lord Stallard
My Lords, does the Minister accept that his replies this afternoon smack of complacency? We have been told that we should not talk ourselves into gloom. But let us try to tell that to the 900 small businessmen who are going bankrupt each week, the thousands who have already gone bankrupt and many others who are on the brink of it and living in dread of the next few weeks. Tell them that the recovery is on the way.

§ Lord Henley
My Lords, obviously I do not wish to sound complacent. There are still high figures as regards unemployment and insolvency. However, these lag behind the changes in output and do not indicate that the recession is getting any steeper.

Lord Bruce of Donington
My Lords, taking into account the remarks made by the noble and learned Lord, Lord Hailsham, on the subject of confidence, will the Minister explain to the House and to the country how it is possible for there to be a return to confidence so long as the present Government remain in office?

§ Lord Henley
My Lords, I, and many other people, have a great deal of confidence in Her Majesty's Government as presently constituted.

§ Lord Marlesford
My Lords, does my noble friend agree that one of the least helpful proposals to encourage economic recovery would be the introduction of a national minimum wage? It would price many people out of work, greatly reduce spending and cause a considerable economic decline.

§ Lard Henley
My Lords, my noble friend is absolutely correct. I do not believe that many people—except, of course, a few misguided people opposite—believe in a national minimum wage.

§ Lord Holme of Cheltenham
My Lords, the Minister predicts recovery in the second half of the year. However, are the Government aware that we are already in the second half of the year? Further, does he agree with the remarks made this weekend by his honourable friend Mr. Maude who said that there are no current signs of recovery?

§ Lord Henley
My Lords, the first part of the noble Lord's remarks was somewhat naive. We have never said that the recovery would start on the 1st July; that is, the beginning of the second half of the year. We said that the recovery would come some time in the second half of the year and that is somewhat different from saying that it would start on 1st July. I have not seen the reports of the remarks made by my honourable friend Francis Maude, but I understand that he was misquoted. However, I can quote the words of one of his colleagues in the Treasury, Mr. John Maples, who said: Cur forecast has been that the economy will start to grow again in the second half of this year. We made that forecast at the time of the Budget. Nothing that has happened since makes us want to change that and we believe that events are starting to bear that out".

§ Lord Desai
My Lords, does the Minister agree that he has as much to fear from the recovery happening as he has from it not happening? Surely inflation will return as soon as the economy revives.

§ Lord Henley
My Lords, inflation must be kept down. We shall continue to keep the pressure on inflation to ensure that it moves downwards. We wish to see steady growth that will not cause the pressures on inflation which occurred in the past.

§ Lord Tordoff
My Lords, is it not the case that the underlying rate of inflation is rising at present?

§ Lord Henley
No, my Lords; it is not.

§ Lord Peston
My Lords, I was interested to hear the Minister's reference to Franklin Roosevelt. Perhaps he is aware that it took the Second World War to get America out of the recession about which he was talking. I hope that there is nothing similar waiting for us. However, can the Minister tell those of us who are interested in this subject what we should be looking at? How will we know when the economic recovery is under way? Further, can he tell us when we should look at it? I accept that it is a difficult matter, but can he tell us what and when?

§ Lord Henley
My Lords, a simple statistic at which to look as regards what happened in the past will be growth in the GDP.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that the Government have the wrong priorities at present? Should not the priority at this time be to secure growth in the economy rather than to protect the exchange rate? Further, is not the protection of the exchange rate now taking precedence over growth and 6 unemployment? Is not that where the Government have gone wrong? Therefore, surely they should now reduce interest rates very sharply and by a large amount.

§ Lord Henley
No, my Lords; the Government's first priority must be the battle against inflation. There is no painless way of reducing inflation. However, the recession has come after years of very rapid growth. Low inflation will mean a return to stable growth.

§ Lord Williams of Elvel
The noble Lord invited us to look at statistics for gross domestic product to see when the economy would recover. Is he aware that the statistics for gross domestic product are made up well after the event? They refer to time past, not to time future. Will the noble Lord be kind enough to tell the House precisely what indicators the Government seek—since Ministers make statements almost every weekend—which will tell us that the economic recovery is occurring and what exactly the Government mean by "economic recovery"?

§ Lord Henley
My Lords, of course I realise, as I thought I made clear, that statistics merely recognise what has happened. The forward indicators will show what will happen. I can, for example, draw the noble Lord's attention to the CSO longer leading cyclical indicator which is consistent with recovery in the second half of this year.