§ Mr. Gouldasked the Chancellor of the Exchequer (1) what increase in the money supply would be required during 1976 to reflect (a) growth in the GNP and (b) the rate of price inflation; and how this compares with the target increase of 12 per cent.:
(2) what effect on the level of economic activity the successful achievement of the target increase of 12 per cent. in the money supply will have, given that the 74W rate of price inflation is greater than 12 per cent.
§ Mr. Denzil Davies, pursuant to his reply [Official Report, 17th December 1976], gave the following information:
There are no well-established relationships relating the growth of the money supply to the growth of real output and activity and the rise in prices in the United Kingdom. The velocity of circulation of money has varied in the past and will undoubtedly continue to do so. It is, therefore, difficult to relate precise rates of growth of the money supply to forecast increases in output and prices; for example, a given growth of money supply could accommodate a higher growth of money income if the velocity of circulation rises. As my right hon. Friend announced on 15th December, our monetary targets are now in terms of domestic credit expansion rather than money supply, and are designed to support the counter-inflation policy and help maintain orderly conditions in the foreign exchange markets. At the same time they should leave room for the provision of the finance necessary to facilitate the shift of resources into exports and productive investment.
§ Mr. Gouldasked the Chancellor of the Exchequer what is the current rate of increase in the money supply.
§ Mr. Denzil Davies, pursuant to his reply [Official Report, 17th December 1976], gave the following information:
The latest available figures, published today, relate to the November banking month. During the month the sterling component of M3, money supply on the broader definition, rose by ¾ per cent. seasonally adjusted, and total M3 rose by ½ per cent. This brings the respective growth rates over the seven months from banking April—broadly the current financial year to date—to 8 per cent. for sterling M3 and 9¼ per cent. for total M3. M1, money supply on the narrower definition, rose by 1 per cent. in banking November, bringing the growth since banking April to 5¾ per cent.