Inflation

Lord Peston Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am grateful to my noble friend for recognising that the Chancellor’s letter was indeed couched in suitable terms. What my right honourable friend said on these points related specifically to commodity markets with our G20 partners—this is a particular focus of the G20 presidency, now with the French—to make sure that we have some global understanding of the drivers and an analysis of what might follow from that.

[Lord Peston]

My Lords—

[Lord Hamilton of Epsom]

My Lords—

[Noble Lords]

This side!

[Lord Peston]

My Lords, does the Minister agree that the problem is that the only instrument available to the MPC is the interest rate? The present rise in price levels is externally driven, which an increase in the interest rate can influence only by strengthening sterling. That would shift demand away from British markets to overseas markets and totally undermine the Government’s strategy. We know that the rules are that the Chancellor cannot say any of that, for obvious reasons, but is the Minister aware that three members of the MPC voted for a rise in interest rates, each one of whom is supposedly an economist? I do not know whether that is a source of enormous embarrassment to the Chancellor, but it certainly is to me.

[Lord Sassoon]

I am grateful to the noble Lord, Lord Peston, as ever, for his insights and for pointing out that he did not expect the Chancellor to answer the question that was posed. Therefore, by extension, he would not expect me to do so. There are a number of very serious points here, the most important of which for the Government is that we need to stick to our fiscal policies as they were set out in the Budget and the spending plans last year. Only yesterday, the OECD endorsed the Government’s fiscal consolidation plans and structural reforms, pointing out that, in its view, this rebalancing was necessary for stronger growth. That is what we must stick to as a background against which the independent MPC is best able to make its interest rate decisions.