The Economy

Part of Orders of the Day — Debate on the Address – in the House of Commons at 4:42 pm on 7 November 1991.

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Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 4:42, 7 November 1991

I apologise to the House because I have been caught by surprise. I thought that the right hon. and learned Member for Monklands, East (Mr. Smith) was just beginning his attack on the Government.

The right hon. and learned Gentleman devoted a certain amount of time to the economic forecast, but it must have been quite clear to my right hon. and hon. Friends that what really upset the right hon. and learned Gentleman about the forecast that I published yesterday was that it is good news for the economy and therefore bad news for the Labour party. It shows that we are on track for recovery, and that recovery will gather momentum next year.

The right hon. and learned Gentleman also talked about the forecast that was made at this time last year, when we said that we would make dramatic progress on inflation. He has not told the House his view of that forecast on inflation. When we said at this time last year that we would get inflation down to 4 per cent., the right hon. and learned Gentleman scoffed, but that forecast has been vindicated. Today, inflation is 4·1 per cent. and it is set to fall further. With unit labour costs actually falling, underlying inflation will continue to fall throughout next year. As I have made clear, inflation according to the retail prices index may rise a little early next year as special factors, especially mortgage interest payments, drop out of the calculation before falling back again to 4 per cent. by the end of 1992. Factory gate inflation will be at its lowest level since the 1960s. That is the measure of our considerable achievement.

I do not think that the right hon. Gentleman mentioned inflation but, unlike him, we have never wavered from the view that the defeat of inflation is a necessary condition for growth and economic success. Unlike the right hon. and learned Gentleman, we have never flinched from the measures that are necessary to deal with opposition[Interruption.]—to deal with inflation—[Horn. MEMBERS: "Ah."] we have never flinched from the measures that are necessary to deal with both of them. The story of the past year has been about the dramatic progress that we have made and the lack of support and the lack of determination to defeat inflation that has been evident from the Opposition.

As inflation has fallen, we have cut interest rates, but after each of those cuts, the right hon. and learned Gentleman for Monklands, East has leapt to his feet, rushed to the television studios and demanded another cut, another 1 per cent. As one of the newspapers said, he is "Mr. One Per Cent." Whatever the level of interest rates, the right hon. and learned Gentleman thinks that they should be lower. He was at it again the other day immediately after the Mansion House speech when he said that, if he were Chancellor, he would hope to cut interest rates "quite quickly". The truth is that, if he were ever to become Chancellor of the Exchequer, the only thing that he would do "quite quickly", would be to put up interest rates. He would have to do that. "Mr. One Per Cent." cut would become "Mr. One Per Cent." rise.

The right hon. and learned Gentleman does not understand that it is precisely because our approach has been prudent that our interest rate cuts have been sustained. As a result, businesses and the foreign exchange markets have realised that we are on course for stable and lasting low inflation. That is, and will continue to be, the achievement of this Government.