HC Deb 01 December 1977 vol 940 cc323-4W
Mr. Gould

asked the Chancellor of the Exchequer whether he will allow an increase in the money supply relative to prices and wages in order to permit increased economic activity to take place.

Mr. Denzil Davies

The relationship between the growth of the money supply and the growth of money national incomes is neither as direct nor as exact as my hon. Friend implies. The Government's objective is to keep control of the monetary aggregates so that they do not add to inflationary pressures, while ensuring that finance is available for the essential needs of industry. The impetus to inflation which would result from the loss of control over the aggregates could only have a very harmful effect on the prospects for real growth in the economy.

Mr. David Mitchell

asked the Chancellor of the Exchequer (1) whether his attention has been drawn to the recent increase in the money supply; and what measures he proposes to take to prevent further increases in the immediate future;

(2) in view of the sluggishness of demand, to what he attributes the large rise in bank lending; and whether he will make a statement.

Mr. Denzil Davies

The large rise in bank lending in the month to mid-October followed a rather small rise over the previous month, and the underlying trend is unclear for the moment. My right hon. Friend keeps the growth of the monetary aggregates under constant review and will continue to see that steps are taken to control them in such a way as to give maximum support to counter-inflation policy. Both the change in foreign exchange market intervention tactics announced on 31st October and the decision to allow short-term interest rates to rise can be expected to assist in this objective.

Mr. Wrigglesworth

asked the Chancellor of the Exchequer (1) what other steps the Government or the Bank of England considered to keep money aggregates under control in addition to increasing the MLR;

(2) if he will now seek to maintain the money supply targets by the taking of special deposits by the Bank of England and by corset controls over bank assets.

Mr. Denzil Davies

All aspects of monetary control are kept constantly under review; changes in the rate of call for special deposits and a reimposition of the supplementary special deposits scheme are not excluded in circumstances where these would be appropriate. But the Government are confident that the recent change in short-term interest rates is a sufficient policy response at this stage.