§ Mr. Gouldasked the Chancellor of the Exchequer what consequences for the money supply are forecast as a result of capital outflows accompanying the current fall in the exchange rate.
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§ Mr. Denzil DaviesThe effects of external flows on the growth of £M3 are extremely complex. The direct effect of outflows depends on the way in which they have been financed; the money supply is affected only to the extent that the outflows are financed by a reduction in sterling bank deposits held by United Kingdom residents. Though we do not yet have information about the form of recent capital flows, there is likely to be some immediate downward effect on the growth of the money supply. But over a somewhat longer period the effect depends on the impact of related factors such as interest rates, the exchange rate and inflationary expectations.
BALANCE OF PAYMENTS 1975–77 £ billion 1975 1976 1977 Current account … … … … … -1.6 -1.1 0.0 Capital flows and balancing item … … 0.1 -2.5 7.4 Balance for official financing … … … -1.5 -3.6 7.4 The forecast for the current account balance presented in the Financial Statement and Budget Review is for a surplus of £¾ billion in 1978.
Estimates and forecasts for the potential balance of payments effects of North Sea oil were given in the Treasury Economic Progress Report for August 1977. There are many uncertainties about how the economy would develop in the
POTENTIAL BALANCE OF PAYMENTS EFFECTS OF NORTH SEA OIL PROGRAMME £ billion Current prices 1977 prices 1975 1976 1977 1978 1979 1980 1985 Net effect on current account … … -0.3 -0.1 1.7 3.1 4.3 5.0 8.8 Net effect on capital account … … 0.7 1.0 0.8 0.8 0.9 0.8 -0.1 Net effect on balance of payments … 0.4 0.9 2.5 3.9 5.2 5.7 8.7
Estimate of repayments of foreign official debt are as follows (see notes below): $ billion 1978 1979 1980 1981 1982 1983 1984 2.9 2.5 3.3 5.2 3.4 2.5 2.6 Notes: (i) Repayments in non-dollar currencies have been converted into dollars at end-March 1978 rates. (ii) Account is taken in the figures of all the early repayment of debt so far announced, except for the second early repayment of $1 billion to the IMF announced by the Chancellor in his Budget speech. (iii) The figures include repayment of all IMF debt (including the gold tranche), all HMG foreign currency debt, and all public sector borrowing abroad.