Below is the text of Mr Major’s response on Inflation, made on 23rd February 1989 in the House of Commons.
Mr. Douglas To ask the Chancellor of the Exchequer what is the latest forecast for inflation for 1989–90.
Ms. Walley To ask the Chancellor of the Exchequer what is the latest forecast for inflation for 1989–90.
Mr. Major My right hon. Friend the Chancellor will be giving a forecast in his Budget statement next month.
Mr. Douglas Does the Chief Secretary admit that one of the difficulties in anticipating the rise in inflation arises because the Chancellor has left himself only one weapon of economic management – interest rates – which is rather like asking Mr. Bruno to fight Mr. Tyson with one hand tied behind his back? As the Prime Minister was so appalled when the rate of inflation was 3 per cent., halving the value of money in a period of about 25 years, will the right hon. Gentleman give us some idea of what No. 10 is saying about that? When will the value of money be halved at the present rate?
Mr. Major The hon. Gentleman may be under some misapprehensions, the first of which is about monetary policy, which has worked in the past and will work in the future. Neither is that the only aspect of my right hon. Friend’s policy; it is buttressed at the moment by a firm fiscal policy and a huge debt repayment, which was not the position when the hon. Gentleman’s party was in Government.
Mr. Batiste Does my right hon. Friend agree that art increase in personal savings at the expense of personal expenditure would produce a downward pressure on inflation and the balance of payments deficit? If so, how best can such a welcome increase in personal savings be accomplished?
Mr. Major I agree with my hon. Friend’s opening, remarks. My right hon. Friend’s high interest policy offers people a great incentive to save.
Mr. James Lamond Is the Minister aware that the monetary policy is not working as satisfactorily as he thinks, according to the Manchester chamber of commerce and industry, which, in its latest bulletin, complains that high interest rates and a high pound are preventing firms from expanding at the rate that they would wish? Is he further aware that it feels that that policy may be all right for the overheated economy in the south-east of England, but is not acceptable in the north-west?
Mr. Major The hon. Gentleman may have heard what my right hon. Friend said a few moments ago about the remarks of Mr. John Banham. In case he does not recollect them, I remind him that Mr. Banham said: We think the Chancellor should carry on with high interest rates to combat inflation. The hon. Gentleman neglected to say that the Manchester report was highly optimistic.
Mr. Latham Since the Government’s interest rate policy is already having a dramatic effect in reducing overheating, and indeed output, in the private housing industry, is not the practical reality likely that market forces will soon force down building society borrowing rates?
Mr. Major I am certainly not in the business of making that forecast, but my hon. Friend is entirely right that there are already clear signs of a slowdown in consumer spending, and one trusts that inflation will follow it down in due course.
Dr. Marek Will the Chief Secretary accept that the Opposition are alarmed at the Paymaster General’s complacency about the dominance of hot money over direct and portfolio investment on the capital account and its clear threat of inflation? What measures is the Chief Secretary going to take with regard to this matter, or is he just going to keep to an interest rate war with the United States of America? If he does not take further measures, the country, as judge and jury, will find the Government and their economic policy guilty as charged.
Mr. Major The hon. Gentleman’s remarks bear little or no relationship to the question. I find it very strange to hear lectures about inflation from the Labour party when every policy it recommends to us is inflationary in one aspect or another.