§ Mr. Ian Stewartasked the Chancellor of the Exchequer how the effect of interest rates on investment intentions is taken into account by the Treasury in its economic forecasts.
§ Mr. Denzil DaviesThe short-term forecasts of private fixed investment give weight to various factors including econometric relationships and the most recent surveys of investment intentions. The econometric relationships do not take explicit account of the effect of interest 895W rates on fixed investment, except for private dwellings. However, to the extent that the expected level of interest rates is adequately reflected in the response to the intentions surveys, an allowance for their effect is incorporated in the forecasts. Moreover, an allowance is made for changes in cash flow in the relationships for investment by manufacturing and the distributive and service sectors and this will reflect indirectly the effect of changes in interest rates.