Below is the text of Mr Major’s comments on interest rates, made on 8th July 1992.
If you look at the level of interest rates now, it is not materially different from the average level of interest rates right the way through the 1980s. It feels different because the asset values have fallen but it is not different and people then say that the real rate of interest is quite high yet our real rate of interest is less than in Germany. For the first time since we joined the Exchange Rate Mechanism, our rate of interest has come to within 0.25 percent of the Germany interest rates for the first time in God knows how many years – more years than I care to remember.
They say we are bound entirely by what happens to Germany, those people who oppose our present interest rates policy. I find that very odd. In the last twenty months since we joined, German interest rates have gone up by about 3%, sterling interest rates have come down by 5%. I think that is very odd. If we are tied dot and comma to everything that happens in Germany, I think people should explain why that should be so if that has happened. The point is it is not so and so I am suspicious of the one or two percent off interest rates to kick-start the economy argument. I know of no evidence that that is the case either in this country or in the evidence of what has happened elsewhere in the world.
We will have to take interest rates down gradually as we can safely do so without damaging the exchange value of sterling and that is so in the Exchange Rate Mechanism or out of it.