Exchange Rates (Hansard, 3 November 1980)

§ Mr. Austin Mitchell
asked the Chancellor of the Exchequer (1) what is 459W his latest estimate of (a) the time taken for exchange rate changes to be substantially reflected in the figures for United Kingdom exports of manufactures and (b) the reduction in exports to be expected from a 1 per cent. reduction in the real exchange rate;
(2) what is his latest estimate of the time taken for exchange rate changes substantially to be reflected in the figures for United Kingdom imports of manufacturers and of the increase to be expected from a 1 per cent. reduction in the real exchange rate, showing imports of semi-manufactures and finished manufactures as well as total manufactures.

§ Mr. Lawson
Exchange rate changes are only one of the factors which determine United Kingdom competitiveness. The long run cost competitiveness elasticities in use in the most recent version of the Treasury macroeconomic model are:

Percentage change in volumes per 1 per cent. reduction in U.K. relative costs

Exports of manufactures +¾

Imports of semi-manufactures −¼

Imports of finished manufactures −½

It is estimated that it can take up to four years for the full effects on export volume of a change in competitiveness to come through; and up to two years in the case of import volumes. These estimates are inevitably subject to a wide margin of error.

§ Mr. Austin Mitchell
asked the Chancellor of the Exchequer whether he will circulate in the Official Report an estimate showing how much of the increase in the real exchange rate since 1 January 1979 is due to North Sea oil and how much is due to higher interest rates.

§ Mr. Lawson
No. There are many factors that have affected the exchange rate over the last two years, of which our possession of North Sea oil at a time of continuing uncertainty in the Middle East is undoubtedly one, and the level of United Kingdom interest rates in relation to those overseas may be another. I know of no satisfactory way to attribute the rise in the real exchange rate between these and other factors.

§ Mr. Austin Mitchell
asked the Chancellor of the Exchequer whether he 460W will publish in the Official Report an estimate of the effect which the appreciation of 45 per cent. in the real exchange rate since November 1976 has had on the rate of inflation.

§ Mr. Lawson
No. While the effect has undoubtedly been beneficial, it is not possible accurately to quantify it.

Percentage change in volumes per 1 per cent. reduction in U.K. relative costs
Exports of manufactures	+¾
Imports of semi-manufactures	−¼
Imports of finished manufactures	−½