Exchange Rate: Monetary Policy Committee Discussions (Hansard, 1 March 2000)

§ Lord McIntosh of Haringey
My Lords, the Chancellor and the Governor meet regularly and 554 discuss a wide range of issues. The best contribution that the Government can make to exchange rate stability, consistent with their objective of a stable and competitive pound over the medium term, is to maintain sound public finances and low inflation.

§ Lord Mackay of Ardbrecknish
My Lords, has the Minister told me that the Chancellor has discussed the exchange rate with the Governor or with the Monetary Policy Committee? Perhaps he can tell me the answer to that when he returns to the Dispatch Box. No doubt the noble Lord has read the latest set of minutes of the Monetary Policy Committee of the Bank of England. Is he aware of how seriously that committee was considering the exchange rate at that time? Can he help me by telling me exactly what the Monetary Policy Committee could do to depress the exchange rate, which yesterday was described by Eddie George, the Governor, as "unsustainably strong"? At the risk of tempting the Minister, perhaps he can tell me whether he agrees with the Governor of the Bank of England about that.

§ Lord McIntosh of Haringey
My Lords, it is not our practice to reveal the content of private discussions between the Governor of the Bank of England and the Chancellor or, indeed, between any other Ministers and those outside. As to the issue of the Monetary Policy Committee discussions, yes, of course, the noble Lord is right. He has read the minutes, as I have, and clearly it is a serious issue. However, as he said, the Governor concluded that intervention would be no use. He went on to say that the sheer size of the currency markets, where more than 1 trillion dollars' worth of trading takes place each day, makes it difficult for one central bank to change any one exchange rate for very long. As to the Government's view of exchange rates, we do not publish a running commentary on them.

§ Lord Peston
My Lords, in view of the fact that the Chancellor is still responsible for economic policy, even though operational responsibility has passed to the Monetary Policy Committee, does my noble friend agree that whether or not the Governor publishes a minute of his meeting with the Chancellor, it would be a most absurd state of affairs if my right honourable friend the Chancellor did not discuss the exchange rate inter alia? It is one of the fictions of British government that you have to pretend that all Ministers are idiots by saying, "There is no way I will tell you what we have been talking about or what was said". That does not matter because we are not idiots in your Lordships' House and are perfectly well aware of what they must have been talking about. The pity of it is that we do not have a new tradition which enables Ministers to say, "Yes, we did talk about those sorts of things because that is what we do".

§ Lord McIntosh of Haringey
My Lords, the proper reply is that I can neither confirm nor deny that the Chancellor discussed exchange rates with the Governor. Clearly Ministers are not idiots, any more 555 than your Lordships are idiots. They would expect those matters to be discussed and would not expect me to reveal the detail of which matters are discussed.

§ Lord Howell of Guildford
My Lords, given that nowadays neither economists nor central bankers have much of a clue what determines exchange rates and, indeed, are reaching the conclusion that the inflation rate is far more influenced by the new technology than by jiggling around in the short term with interest rates, which may aggravate the situation and have a counter-effect, is it not time that the Monetary Policy Committee experiment was thoroughly reviewed and the committee given a new and much narrower mandate before it wanders off into areas over which it has no control and no idea of what the result of its actions will be?

§ Lord McIntosh of Haringey
My Lords, if we read the minutes of the Monetary Policy Committee of 9th and 10th February, we see that the discussion on the exchange rate was carried out before the committee turned to its immediate policy decision. In other words, it was an opening run round the course, just as we have in your Lordships' House from time to time on these matters.
What is conspicuous about the minutes of that discussion is the degree of disagreement which is evident from different committee members. They differed in their preferred assumptions. Views differed as regards the possibilities. It is right for the committee to discuss those matters but it is evident that there is no consensus among members of the Monetary Policy Committee or anybody else.

§ Lord Stoddart of Swindon
My Lords, can my noble friend recall the time, particularly in 1968, when we used to think that the weak pound was a very bad thing and we longed for a strong pound? Is it not a fact that many factors determine the strength of the currency? First, are people not attracted to this country because we have a strong and stable economy? Is it not also the case that we have had a stable pound against the dollar over a very long period of time? Instead of moaning about the strength of the pound, would it not be better for business and commerce to get on with the job of becoming more productive and exporting a lot more?

§ Lord McIntosh of Haringey
My Lords, I am relieved to find that I can agree with my noble friend. He expresses government policy very closely indeed. Of course, we do not underestimate the difficulties, particularly for manufacturing industry, of a strong pound. But it is true that a strong and stable economy is likely to encourage a strong pound. The Monetary Policy Committee discussed that in its consideration of a risk premium. I do not believe that we should reach the conclusion that a strong pound is a painless result of the success of our economic policies.

§ Lord Barnett
My Lords, I assume that the official Opposition agree with the Shadow Chancellor that there should be an independent Bank of England and Monetary Policy Committee. Indeed, I see the noble Lord, Lord Mackay of Ardbrecknish, is nodding in agreement. In those circumstances, they will no doubt agree that the Government should not interfere with a so-called independent Bank. We know that the Chancellor and the Governor have discussions and no doubt they discuss the exchange rate. It would be rather surprising if they did not. But there are those—perhaps on the Opposition Benches—who want to see the pound weaker in line with the euro. They perhaps think that is a good thing. Or do they? I do not know. But this question is directed at my noble friend and not the Opposition. Would it not be helpful if we knew whether the Chancellor agreed on the question of the exchange rate and, in so far as interest rate changes affect it, whether they agree with what the Governor said yesterday; namely, that the present interest rates should not be changed for a while in order to ensure that the exchange rate is helped?

§ Lord McIntosh of Haringey
My Lords, I thought that I had already said in an earlier Answer that we do not provide a running commentary on short-term changes in exchange rates. If my noble friend is thinking in the longer term, we have acknowledged the difficulties which a strong pound imposes on, in particular, our manufacturing industries. But we believe that we should stick to our long-term policies of price stability and high levels of growth and employment.