§ Mr. Leightonasked the Chancellor of the Exchequer what is the estimated gain to the balance of payments as a result of a reduction of 1 per cent. in the real exchange rate of the £ sterling against other currencies; and what has been the percentage increase in the real exchange rate since 1 January 1978.
§ Mr. LawsonThe effect on the balance of payments of a 1 per cent. change in the real exchange rate will depend critically on what brings that change about, on what the accompanying domestic policies are, and on what estimates are made of the responsiveness of trade flows to changes in 0063ompetitiveness.
Between 3 January 1978 and 25 July 1979 the effective exchange rate index appreciated by 11.4 per cent. The appreciation of the real exchange rate, as measured by relative normal unit labour costs, is likely to have been somewhat greater than that.