I am most grateful to the hon. Gentleman. Very wisely, he is taking a panoramic view of the issue. I wish, however, to concentrate on the narrow issue of the state of the economy.
There is now a burgeoning recession. I am not sure that that point is really appreciated by the Treasury Bench and the Governor of the Bank of England. There is still talk about the recession being short and shallow. I see little evidence, on an anecdotal basis, to persuade me that the recession has that character. I believe that, in many sectors of the economy, we have been in recession for a considerable period. That makes nonsense of the proposition that the recession will be short.
If I need additional evidence, I move away from feelings and sentiments that are shared by almost every hon. Member who comes from an industrial area and turn to that great and respected source of judgment, the Confederation of British Industry, whose judgment is much more likely to weigh with the Goliaths of the Treasury Bench. The latest CBI report says:
Output expectations … in December represent the largest expected fall since December 1980.
In my view, the case is clearly made out for an early reduction in interest rates.
No one who looks at the general pattern of demand in this country and at monetary control can suppose that we are in a lax monetary position that will not admit of a further reduction in interest rates. The Government's reluctance to cut interest rates is because of their inhibitions on account of our membership of the exchange rate mechanism. In a recent debate, the Chancellor of the Exchequer said:
There can be no question of a reduction in interest rates that is not fully justified by our position in the ERM. That will be the case however strong is the pressure for lower interest rates based on other indicators."—[Official Report, 12 December 1990; Vol. 182, c. 966.]
Other indicators? The rate of unemployment, the fall in industrial investment, the range of economic experiences that we can now trace within our domestic economy? Are they to be set at naught and are we predominantly to take a view on
our position in the ERM"?
My hon. Friend the Member for Chichester (Mr. Nelson) intervened in the debate to give his benediction to the Government's policy. We could argue about fixed exchange rates and free exchange rates on another occasion. We adhere to two different economic philosophies. Due to the fraternal nature of the Conservative party, which has been so evident over recent weeks, we can cope with that.
There is, however, a narrow issue: whether membership of the exchange rate mechanism was effected at an appropriate parity. If it was not effected at an appropriate parity, a perpetual disadvantage will weigh upon British industry, just as the return to the gold standard at a wholly unrealistic figure cast its shadow over the operation of the economy in the 1920s and 1930s. I do not want the House to be burdened by the oppressive memory of Montagu Norman. Central bankers had a great deal more control over our affairs then than, happily, they do at the moment. I want politicians to be able to form their judgment on what the economy requires and to reach a decision on such intimate matters as the rate of interest.