§ Mr. Tebbitasked the Chancellor of the Exchequer what he estimates will be the impact on the retail price index of the fluctuation in the external value of sterling since the beginning of the current year; and over what period this impact will be experienced.
§ Mr. Robert SheldonThe effective exchange rate of the £ sterling has fallen by approximately 5 per cent. since the beginning of the current year, but rose by about the same percentage in the last quarter of 1977. The usual relationships, which may not strictly apply to temporary fluctuations of this kind, suggest that the direct effect of the rise in the exchange rate in the last three months of 1977 would have been to reduce the general index of retail prices (RPI) by about 1–1½ per cent. below the level it would otherwise have attained. The subsequent fall in the exchange rate is likely to result786W in the RPI being 1–1½ per cent. higher than the level which would otherwise have been reached had the appreciation in the last quarter of 1977 not been reversed. Most of the effects of these exchange rate fluctuations can be expected to have fed through into the RPI by the end of the year.