asked the Secretary of State for Trade what estimates he has made of the likely effects on United Kingdom trade overseas arising from the recent upward adjustment in the exchange rate of the £ sterling.
We do not know where the sterling rate is going to settle, and any estimate of the effect of the upward movement on trade must at this stage be uncertain. An appreciation of sterling might be expected initially to improve the trade balance as import prices are reduced. The eventual effect will depend on domestic costs and on how trade prices and volumes respond.
What is the best future rate of exchange for sterling for successful British exports next year? Why did the Secretary of State disagree with the Chancellor a week ago?
There is no evidence to substantiate what the hon. Gentleman has just said. There was Government discussion of this matter, and a common view prevailed about a matter on which there are conflicting interests.
What action will the hon. Gentleman take with his colleagues to put over to British exporters the example of West Germany and Japan, which shows that it is possible to have a very strong currency but also to have a $15 billion trade surplus?
The British Overseas Trade Board is constantly seeking to improve the export performance of British industry. Indeed, there is good evidence in the recent period that it has at least played a part in achieving the substantial improvement in the non-oil balance of trade, which in the third quarter of this year went up to £600 million. The BOTB must be seen to be playing a part in that, but the industrial strategy in the sector working parties is also designed to improve industrial performance compatible with a strong currency.
Does my hon. Friend accept that, unlike the Japanese and German currencies, the pound might be artificially revalued as a result of North Sea oil? Some of us are quite happy about the pound floating up to a certain extent, but what investigations or proposals has the Department considered for protecting British industry if the pound were to be too highly revalued as a result of North Sea oil?
My hon. Friend has raised an important question. It is not unfair to say that, as a result of authorising a free float a week ago, the net result compared with, say, 10 days ago is a rise in the rate to only $ 1·80 from the level immediately before of about $1·77. There are many considerations. Of course, preserving export competitiveness is a key consideration, but one must also look at the impact of an inflow of foreign money, which brings the reserves to over £11 billion.
Does the Minister agree that British industry should not have to rely upon being competitive on a low and unrealistic valuation of sterling as that is merely an illusion of competitiveness, and that it is only by abandoning that illusion that we can concentrate on the real causes of lack of British competitiveness, particularly low productivity and the lack of incentives to increase our productivity?
Of course it is important to improve productivity, and there is ceaseless effort so to do. But I think that the hon. Gentleman is a little cavalier in assuming that he knows the appropriate level of the sterling exchange rate. I think he clearly implied that sterling was undervalued. What is an under- valued sterling exchange rate is a moot point.
Would not my hon. Friend agree that, if inflation rates in this country are higher than they are abroad, that must mean that our goods become less competitive and thus, if the exchange rate is going up, it must have an adverse effect upon the export of manufactured goods?
It is perfectly true that, in the end, the exchange rate must reflect the differential in inflation rates. But it is also true that during 1976 the pound depreciated by what many observers would feel was considerably more than the then existing differential in inflation rates. No doubt we are partly seeing—I merely say "partly seeing "—a readjustment of that excess drop of last year.