§ Mr. Leeasked the Chancellor of the Exchequer what is his estimate of the amount by which costs of production will be increased or decreased as a result of last week's increase in the minimum lending rate; and, if any increase is estimated, what countervailing measures he intends to take so as to mitigate the consequent adverse effects upon employment and exports.
§ Mr. Denzil DaviesI am not able to give a precise estimate of the effect of last week's increase in the minimum lending rate on industrial costs of production. This is because the effects of such a change in the economy are both uncertain and complex. The effects are uncertain because they depend on the extent to which other interest rates, both short and long-term, rise to reflect the increase in minimum lending rate, and on how long the increase in rates can be expected to last. The effects are complex because a change in interest rates may have repercussions throughout the economy.
As my right hon. Friend made clear in his Budget Statement, some increase in interest rates from the levels prevailing at that time was to be expected. The alternative would be a more rapid growth in the money supply, which would almost certainly have worse consequences for industrial costs in the long run.