§ Sir C. Osborneasked the Chancellor of the Exchequer what caused the run 167W on sterling last July and August which so depleted the reserves that the United Kingdom could hold out for only a few more days; what stopped that run; what new action he has taken to prevent it occurring again; to what extent sterling reserves are sufficient to provide for the repayment of the £1,000 million short-term loans contracted since October, 1964, and to defend sterling at its present rate of exchange; and if he will make a statement.
§ Mr. CallaghanAt no time last year was it true that the United Kingdom could have held out for only a few more days. That, as my right hon. Friend the Prime Minister took care to point out in a recent speech, was what others erroneously believed. And they were wrong.
The basic reason for the run on our reserves in July and August was the underlying deficit in the balance of payments aggravated by an outflow of short-term capital. The recovery began when the balance of payments improved and the world was convinced by the Government's actions of its determination to maintain the parity of the pound. This was furthered by the announcement on 10th September of new support arrangements agreed with other central banks. These arrangements, which are still in force, together with the other facilities at our disposal to reinforce our now enlarged reserves, provide a strong defence against renewed speculative attack.
The debt incurred—which is no larger than the amount required to finance the deficit of 1964 and the smaller deficit of 1965—will have to be repaid from surpluses we shall earn after correcting the large deficit we inherited from the previous administration.