Exchange Rates (Hansard, 18 May 1993)

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what estimate he has made of the effect of rises in exchange rates on output and employment in(a) manufacturing industry and (b) the rest of the economy since February.

§ Mr. Nelson
There are a large number of influences on economic activity at any one time, and it is impossible properly to assess the effect of exchange rate changes in isolation. But there are encouraging signs, in the figures for manufacturing output and GDP as well as in other indicators, that the economy is beginning to recover across a broad front.

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer whether Britain was free to determine its own monetary policy as a member of the exchange rate mechanism; and what proposals he has for changing the rules of the exchange rate mechanism to allow the pursuit of an independent monetary policy.

§ Mr. Nelson
Membership of the exchange rate mechanism (ERM) is a matter of choice, not obligation. It is not possible to pursue an independent monetary policy without regard to the exchange rate, inside or outside the exchange rate mechanism.

§ Mr. Austin Mitchell
To ask the Chancellor of the Exchequer what policy objectives underlie the Government's purpose in raising nominal and real exchange rates; and if he will estimate by how much the public sector borrowing requirement increased as a result of the increase in nominal and real exchange rates since February.
111W

§ Mr. Nelson
The objective of the Government's monetary policy is to keep underlying inflation with a range of 1 to 4 per cent. and to bring it down to the lower part of that range by the end of the current Parliament. Short-term interest rates are set in order to meet this objective. The exchange rate is one of the indicators taken into account in assessing monetary conditions, but there is no target for the nominal or real exchange rate. A higher exchange rate reduces the sterling cost of public expenditure incurred in foreign currencies, but this is only one of a number of influences affecting the size of the PSBR.