§ 29. Mr. Norman Atkinsonasked the Chancellor of the Exchequer on what evidence he relies when he assumes that a further increase in money supply, M3 sterling, would result in a rate of inflation higher than his projected figure for 1978.
§ Mr. Denzil DaviesMonetary policy affects prices through various channels, including its effects on expectations. For example, there is a good deal of evidence that exchange rate movements are influenced by relative monetary conditions here and abroad; thus a faster expansion in the United Kingdom monetary aggregates would tend to weaken confidence in sterling, push the exchange rate down666W and prices up. More generally, the guidelines for the growth of sterling M3 are one expression of our collective determination to keep the rate of inflation down.