Monetary Policy Committee

Lord Peston Excerpts

Wednesday 16th February 2011 Lords Chamber

[Lord Sassoon]

My Lords, I can confirm to my noble friend that sustainable and low interest rates are absolutely what businesses need to enable them to invest and to support the recovery. I will make a further point before the noble Lord, Lord Myners, jumps up. Last week he chided me for not giving the data on relative interest rates. However, the context then was not relevant. It is very relevant to the Question this morning. The latest data from yesterday on our performance on relative interest rates—the 10-year sovereign borrowing rate since the general election—show that the UK continues to outperform the US. We have narrowed our spreads against the 10-year bund by 39 basis points since the general election at a time when the French, for example, have widened their spread by 10 basis points. Therefore, on relative interest costs, which are a key indicator of whether the markets believe the Government are on their economic course, the news continues to be that we have the confidence of the markets.

[Lord Peston]

Will the noble Lord confirm that it is vital never to confuse the price level with the inflation rate? If the price level goes up as the result of a deliberate policy by the Government to raise VAT, there is no reason to interpret that as a rise in inflation. Therefore, it would be entirely idiotic for the MPC to raise interest rates at any time solely because the Government had raised VAT. Does the noble Lord agree?

[Lord Sassoon]

My Lords, again, I do not want to be drawn into either economic debate with the noble Lord, Lord Peston, or commentary on the governor. The governor indicates that the rise in VAT was one factor behind the rise in inflation, but I should point out that the rise in VAT to which he was referring was the one under the previous Government and not the present rise to 20 per cent. However, I take the noble Lord’s point about the nature of one-off rises such as that.