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Balance of Payments

Volume 485: debated on Thursday 18 December 2008

The pre-Budget report forecast the current account deficit of the UK balance of payments to narrow in the second half of 2008 and in 2009, with net trade forecast to add three quarters of a percentage point to gross domestic product growth next year.

Is that not an incredibly complacent reply? Is the Financial Secretary not ashamed that having inherited a trade surplus in 1997, our deficit last year was the worst since records began—when William of Orange was on the throne? Is it not a disgrace that the trade deficit in manufactured goods has grown from £7 billion in 1997 to a staggering £59 billion last year? Why do the right hon. Gentleman and the Chancellor never talk about the balance of trade? Is it any wonder that the pound is falling so sharply?

I remind the hon. Gentleman that there have actually been quite a few occasions in the past when the current account deficit was higher than it is now. To give him one example, it was 3.8 per cent. in the third quarter of 2007, but it was 4.9 per cent. in 1989 and it is more than 5 per cent. now in the United States. Our strategy is to ensure strong competition in every UK market by promoting openness to free trade, minimising product market regulation and ensuring that there are world-class competition authorities. That is the strategy we are pursuing and we will do so successfully.

The Minister is right: for the first time in a number of years the trade deficit will narrow to about £50 billion for each of the next three years and there will be a net benefit to GDP growth rather than the 0.25 to 0.5 per cent. suppression that we seen since 2000. However, the forecasts in the pre-Budget report were made before the continuing collapse of sterling which makes imports much more expensive. Will the Treasury commit to give a new assessment early in the new year based on the current sterling situation?

Of course we will constantly monitor developments in the economy, as my right hon. Friend the Chancellor emphasised, but we stand by the forecasts we set out in the PBR and our strategy is absolutely the right one.