Exchange Rate

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 16th December 1999.

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Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 12:00 am, 16th December 1999

What his definition is of a competitive sterling exchange rate; and if the United Kingdom currently meets that definition. [101775]

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

The Government do not have a target exchange rate for sterling. By pursuing policies for sound public finances, sustained growth and low inflation, the Government are creating the environment for achieving and maintaining a stable and competitive exchange rate over the medium term.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

How do the Government reconcile their commitment to a stable and competitive exchange rate with the Organisation for Economic Co-operation and Development data which came to the House of Commons Library yesterday, which show that the price competitiveness of British industry, and exporters generally, has declined by 6 per cent. this year; 12 per cent. since the Government came to office; and 30 per cent. since the beginning of 1996? Is the objective simply not attainable, and would it not be more honest for the Government to acknowledge that they are not even proceeding in the right direction?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

We have achieved a remarkable new stability in the economy since the election. The imperative now is to lock that in for the long term, and to build on it to deliver full employment for Britain in the new millennium. I recognise that there are real concerns, particularly for manufacturers selling their goods in Europe, but short-term fixes are not the answer. The pick-up in world growth is improving UK export performance. The latest three-month on three-month data show that goods export volumes, excluding oil and erratics, are up strongly by 8 per cent. to September. Services exports remain close to record high levels, and manufacturing output is up. In reality, the news on exports is encouraging.

Photo of Dr Alan Williams Dr Alan Williams Labour, Carmarthen East and Dinefwr

The totally unexpected fall in the value of the euro in the past year has driven the pound up to record levels. The European Union, as a trading bloc, has a massive balance of payments surplus, inflation is barely 1 per cent. and unemployment is at 10 per cent. What pressure are the Government putting on our European partners to expand their economies so that the euro recovers and the pound can then fall in value?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

That is a matter for them, but I entirely recognise that there are firms —particularly those selling goods in Europe—which are facing real difficulties. However, there is no quick fix here. The consensus among independent forecasters is that exports of goods and services will grow by 4 per cent. next year. Exporters are performing well, and CBI data on export orders show clear improvements on a year ago.

Photo of Eric Forth Eric Forth Conservative, Bromley and Chislehurst

Does the Minister accept the vital role that has been played by variable exchange rates in recent economic history? Does he recognise that most of the successful economies of the past few decades have succeeded because of the fact that they were benefiting from their currencies' variable exchange rate? Does he further accept that a variable exchange rate is a vital mechanism to recognise changing relationships between trading economies, and that, were that variable relationship not to be available, other things would have to vary domestically—not least inflation and unemployment?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

Medium and long-term exchange rate stability is desirable, and requires the approach that we are taking—sound macro—economic policies for sustained growth and low inflation. We will not repeat the mistakes of the past with short-term fixes, which would take us back to Tory boom and bust. We are taking the right decisions for the long term to build for a future of full employment.

Photo of John Swinney John Swinney Scottish National Party, North Tayside

Apart from telling them that there are no short-term fixes, does the Minister have any other advice for exporters who are wrestling with a competitive disadvantage of 20 or 30 per cent. in relation to previous years? Is it not the case that the improvement in manufactured exports has come about only because it is an improvement on pretty awful figures—figures which declined because of the impact of sterling over the past two to three years?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

The hon. Gentleman is right—things are improving. However, I repeat that I recognise the difficulties that some exporters are facing. The Government attach great importance to the promotion of exports. That is why we established British Trade International in May, giving Britain a sharper edge in export markets. We want to work with exporters to maximise their success in overseas export markets.