§ Mr. Deakinsasked the Chancellor of the Exchequer what was the real interest rate in May 1979; what is the current real interest rate; and if he will specify those months in the intervening period when there was a change from a negative to a positive real interest rate and vice versa.
§ Mr. Bruce-GardyneThe calculation of real interest rates raises a number of problems. It is difficult to measure inflation expectations. There is also the question of which price index to use, and the calculation will depend on exactly which nominal interest rate is relevant and the length of time of the financial contract to which that interest rate applies. The calculation will depend on whether it is for a borrower or a lender, so that the tax status of the lender or borrower will have a bearing on the real post tax rate of return or cost of funds. There is thus no unique measure of the real rate of interest.
A number of measures of real interest rates are described and presented in the Bank of England Quarterly Bulletin—December 1982 page 483, and March 1983 page 19. Some of these measures have been persistently positive since 1979 while others have tended to be negative.