In the first half of the current financial year the money supply (M3) seasonally adjusted increased by about 5 per cent. In December the index of retail prices excluding seasonal food was 5¾ per cent. higher at an annual rate than at six months earlier. This represents a marked slowing down in the pace of inflation and I hope that the rise in prices can be slowed down further during the coming year.
My right hon. Friend is greatly to be congratulated on the Government's success in bringing down the wholly intolerable rate of inflation that they inherited. Is there not still some danger that, given the massive state of liquidity and also the very large net borrowing required as expansion develops this year, inflation could possibly take off again from a rather high starting point?
I am grateful to my hon. Friend for his words of wisdom. We must remember that the rate at which the cost of living is rising has halved since April this year. [Interruption.] Surely this good news is welcome to hon. Members opposite as it is to ourselves. I know that the matter of money supply is of particular interest to my hon. Friend, who has been pursuing this subject as long as I have been Chancellor, and long before that, and I would point out that the objective of money supply is to ensure that sufficient money is available to finance the growth of real output for which we are planning but to avoid exacerbating inflationary pressures by an excessive growth of monetary supply.
Would the right hon. Gentleman accept that the money supply situation is in a state of complete shambles, much to my regret, and that during 1971 money supply increased by 12 per cent? In view of the equal shambles in the gilt-edged market, where it is obvious that he is doing everything possible through the Government Broker to reduce rates of interest, would he take steps to tell the Governor of the Bank of England on Thursday to reduce Bank rate so that we can take one little step in reducing the cost of living?
No, Sir, I certainly do not agree that there is a shambles in regard to the matters to which the hon. Gentleman referred. I should have thought that anybody who looked at this matter objectively would agree that we are making good progress.