Economy

Part of the debate – in the House of Lords at 3:15 pm on 3rd November 2008.

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Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury 3:15 pm, 3rd November 2008

My Lords, the currency markets are febrile and volatile and we have seen the phenomenal strength of the yen and the US dollar. Sterling has been a weaker currency, alongside several other currencies, but that is as much a feature of the strength of the dollar and the yen as the weakness of sterling. Indeed, as the IMF said recently when referring to the UK:

"For over a decade, the United Kingdom has sustained low inflation and rapid economic growth—an exceptional achievement ... the fruit of strong policies and policy frameworks, which provide a strong foundation to weather global shocks".

There are a number of reasons why we are better placed than in previous downturns. First, the Bank of England's independence has continued to give us low interest rates and inflation well below the double-digit levels we saw in earlier decades. On 8 October the Bank, along with major central banks around the world, decided to cut interest rates by 0.5 per cent to 4.5 per cent. It made clear that while inflation had risen because of food and energy prices it is now set to fall back, and could fall back very significantly. Secondly, our labour market is the most flexible in Europe. Employment remains close to record highs; there are more than half a million vacancies in the economy; and wage pressures are subdued, led by our own responsible decisions on public sector pay. Thirdly, Britain remains one of the best places in the world to do business, a magnet for overseas investment. Fourthly, thanks to the decisions we have taken since 1997, public debt remains low. This means we can provide targeted support for those who need it most in these difficult times and protect vital investment in our infrastructure—investment that was sacrificed in previous downturns; investment that will underpin our future growth.

One point of encouragement in recent weeks amidst extremely challenging developments has been the fallback in the price of oil from summer's recent high. Oil prices are presently around $60 a barrel compared with $150 a barrel during the summer of this year.