§ Mr. MitchellTo ask the Chancellor of the Exchequer, pursuant to his answer of 24 June,Official Report, columns 455–56 on interest rates, if he will set out the basis of his calculations and the assumptions on which his measures of real rates were based. [6063]

§ 9 Mrs. LiddellThe information requested falls within the responsibility of the Chief Executive of the Office for National Statistics. I have asked hint to arrange for a reply to be given.

Letter from Tim Holt to Mr. Austin Mitchell, dated 1 July 1997:

The Chancellor of the Exchequer has asked me to reply as the Director of the Office for National Statistics to your further question (6063) on interest rates following the answer which I gave on 24 June (at columns 455–6).119WThe original table provided was regretfully incorrect due to miscalculation. I now attach a table providing the corrected nominal and real interest rates which I hope rectifies any confusion ONS caused.As stated in my original letter, the real rate of interest is calculated as the nominal rate of interest adjusted by removing the growth in inflation over the 12 month period. The basis of the calculation is the base interest rate of retail banks adjusted for the change in the retail price index excluding mortgage interest payments.The annual rate of interest is a weighted average of the retail banks' base rate over the year. The weights are the number of days a particular interest rate is in operation.Real interest rates are calculated by adjusting the annual nominal rates by the change in the rate of inflation over the previous year (refer to footnote). The Bank of England also calculate real interest rates, but use indicators of future inflation rather than recorded price changes in the previous year. Latest movements are detailed in their Inflation Report.Once again T apologise for the inconvenience this error has caused you.

RPI: Percentage change over 12 months Nominal interest rate All items excluding mortgage interest payment ^{1}Real interest rate1970 7.2 6.4 0.8 1971 5.9 9.4 -3.2 1972 6.0 7.1 -1.1 1973 9.9 9.2 0.6 1974 12.3 16.0 -3.2 1975 10.4 24.2 -11.1 1976 11.1 16.7 -4.8 1977 8.9 15.9 -6.0 1978 9.1 8.6 0.5 1979 13.7 12.6 1.0 1980 16.3 16.9 -0.5 1981 13.3 12.2 0.9 1982 11.9 8.5 3.2 1983 9.8 5.2 4.4 1984 9.7 4.5 5.0 1985 12.2 5.2 6.7 1986 10.9 3.6 7.0 1987 9.7 3.7 5.8 1988 10.1 4.6 5.3 1989 13.8 5.9 7.5 1990 14.8 8.1 6.2 1991 11.7 6.7 4.7 1992 9.6 4.7 4.6 1993 6.0 3.0 2.9 1994 5.5 2.3 3.1 1995 6.7 2.9 3.7 1996 6.0 3.0 2.9 ^{1}The real interest rate = (((1+i[...]) / (1+r[...]))-1)^{*}100where

[...]= the nominal rate of interest in year t (Column 1/100)

rt = the annual percentage change in retail prices excluding mortgage interest payments (RPIX) between year t-1 and year t (Column 2/100).