Mr. Gouldasked the Chancellor of the Exchequer (1) if he will estimate the effect of the current increase in the level of domestic credit above the level of increase in money gross domestic product on the current level of interest rates;
146W(2) further to the answer, Official Report, 4 July, c. 21–2, concerning the expansion of domestic credit, whether he will revise the table using banking sector data in each case; and if he will include the figures for the increase in the money supply and money gross domestic product;
(3) whether the expansion of domestic credit set out in the answer, Official Report, 4 July, c. 21–2, was consistent with Her Majesty's Government medium term financial strategy;
(4) further to the answer, Official Report, 4 July, c. 21–2, concerning the expansion of domestic credit, whether the increase in £ sterling lending overseas of £¾ billion in the first three months of 1983 had the effect of raising interest rates in the United Kingdom; what was the nature of that lending; and what he regards as a relevant indicator of monetary conditions in current circumstances.
§ Mr. MooreThe table following provides the data requested on the increase in sterling M3 and gross domestic product at current market prices. Figures on the basis of the old banking sector are not available after the fourth quarter of 1981.
My answer, Official Report, 4 July, c. 21–2, pointed out that recent developments cast doubt on the relevance of DCE as an indicator of monetary conditions in current circumstances. The reasons, set out in the June 1983 edition of the Bank of England "Quarterly Bulletin," include the growth of the Eurosterling interbank market and the change to a floating exchange rate These developments mean that an increase in DCE, which reflects an expansion of sterling bank lending abroad, will often be associated with an offsetting increase in overseas sterling bank deposits with United Kingdom banks. The first quarter 1983 increase in sterling lending abroad was associated with an offsetting increase in overseas sterling deposits with United Kingdom banks and a current account surplus. There is no precise relationship between DCE and short-term interest rates. Any relationship will depend on the exact reasons and circumstances surrounding the increase in DCE and developments in other monetary indicators. The first quarter expansion of DCE was consistent with a growth of broad money within the monetary targets set out in the 1982–83 MTFS.
The authorities continue to pay close attention to developments in the monetary aggregates. But, as explained in this year's MTFS, the interpretation of monetary conditions takes account of all the available evidence, including the exchange rate, structural changes in financial markets, saving behaviour, and the level and structure of interest rates.
147W
Increase in Sterling M3 and Gross Domestic Product at Current Prices (Calendar quarterly data; seasonally adjusted) £ million Sterling M3* GDP at current prices 1 January 1978–31 March 1979 7,890 209,540 1 January 1982–31 March 1983 12,040 342,453 1 January-31 March 1979 1,140 44,180 1 January-31 March 1983 3,680 72,033
* The earlier periods use banking sector data; the later periods refer to the expanded monetary sector.