§ Mr. Austin Mitchellasked the Chancellor of the Exchequer what effect the outflow of capital in recent months has had on the money supply.
§ Mr. Bruce-GardyneIt is misleading to consider the monetary impact of either the capital or the current account in isolation. The inevitable counterpart to a large current account surplus is a net capital outflow. But to the extent that the private sector runs an overall balance of payments deficit there will be a net contractionary effect on the domestic money supply.
The most recent estimates for the external counterparts to changes in £M3 appear in table 11.4 of the January edition of "Financial Statistics".
§ Mr. Austin Mitchellasked the Chancellor of the Exchequer whether he will take steps to counter the contractionary effects of the outflow of capital in recent months on the level of economic activity.
§ Mr. Bruce-GardyneThe net capital outflows of recent years are the inevitable counterpart to a large current account surplus. Capital outflows in the form of direct and portfolio investment by United Kingdom residents overseas represent an increase in the nation's net financial wealth. As such they provide a useful source of future net revenue from overseas.
There is no reason to believe that recent capital outflows have exerted a contractionary effect on the United Kingdom economy. There is little evidence to suggest that the capital spending of United Kingdom firms has been constrained by a shortage of external finance. Moreover, United Kingdom direct investment overseas often increases the United Kingdom's access to overseas markets, thereby encouraging output and investment in the domestic economy.