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Volume 929: debated on Tuesday 29 March 1977

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3.33 p.m.

In my statement to the House last December I announced economic measures which were part of a medium-term programme for national recovery. I said that those measures, reinforced by the next Budget and further progress on the industrial strategy, would enable us to make the difficult transition to a more firmly based prosperity.

The measures I then announced have succeeded in their main purpose. They have restored our financial stability. This is shown by the rise in the exchange rate, which has been stable at 16 cents above the low point it reached last October, by the increase in the reserves, by the Basle agreement on sterling balances, and by the market loan of $1½ billion which I signed in February. Domestically the success of the measures is shown by the sales of gilts which have kept the monetary aggregates under tight control and by the fall in interest rates—short rates are down by 5 per cent. since their peak in October.

These striking financial successes are a necessary condition for our recovery and must be maintained. But they are not by themselves sufficient to achieve the fastest possible return to a high and sustainable level of output and employment, which remains this Government's overall economic objective. This Budget builds on the success of the December measures and moves us further towards recovery.

The principal measures I shall be announcing will contribute to two key aims—getting our inflation down to the level of our main competitors and improving the performance of our manufacturing industry. The scope for such measures is governed by the need to maintain the financial stability we have now achieved and to get rid of the deficit on our current balance of payments. It is still too soon to take risks in either of these fields, so, if anything, I must err on the side of caution this year, particularly while the precise path of our balance of payments is still uncertain.