To ask Her Majesty’s Government what consideration they have given to whether a decline in the sterling exchange rate is good or bad for economic recovery.

My Lords, the Pre-Budget Report 2008 states:

“Export volumes growth in 2009 is forecast to be 0 to ½ per cent, but as growth in the UK’s export markets recovers and the effects from sterling gradually encourage more companies to pursue export opportunities, growth is forecast to pick up in 2010 and further in 2011”.

The Pre-Budget Report also mentions that,

“the pass-through from sterling’s depreciation will exert upward pressure”,

on prices, but it states that inflation is expected to return to target in 2011 as other factors exert downward pressure.

My Lords, I think that I thank my noble friend; I am not sure that that answers my Question. Does he accept that the depreciation of the currency is positively helpful as a step towards economic recovery in the sense that it will help to get us out of the recession rather quicker than would have been the case without that correction of the currency? Can he assure us that he will leave the currency to find its own level and not seek to manage it in some strange way that I am not sure about?

My Lords, the adjustment that we have seen in the value of sterling should be helpful to British exporters, including, in particular, the very large manufacturing sector, to which my noble friend Lady Whitaker referred last week. It should also mean that opportunities emerge for domestic manufacturers to supply domestic demand which has previously been met by production from overseas. I assure my noble friend that the Government’s monetary policy will continue to pursue the framework that has successfully been in place since 1987—namely, to target inflation and not an exchange rate.

My Lords, I want to ask the Minister again. Underneath that mass of verbiage, was the Answer to the noble Lord’s Question, “Yes, it’s good” or “Yes, it’s bad”? Which was it?

My Lords, within the verbiage to which the noble Lord, Lord Tebbit, refers, I have answered the questions with as much care as I can. I certainly rest assured that, although he accuses me of verbiage, he will not be accusing me of laziness—a description that he has applied to a new member of his Front-Bench team in the other House.

The benefit of a lower exchange rate is enhanced export competitiveness and an ability to provide more demand for domestic production than from overseas sources. That is what I said earlier; I repeat it.

My Lords, the noble Lord said that the Pre-Budget Report assumed that exports would start growing in the second half of the year. What is the Government’s current estimate as to when the economy as a whole will start growing again?

My Lords, the Government are required under the Industry Act to place economic forecasts before Parliament on two occasions in a year and no doubt my friend the Chancellor of the Exchequer will do so at the time of the Budget.

My Lords, would the noble Lord agree that if we were members of the European single currency it would not have been possible for us to cut interest rates in the way which the Government have, and that that would not have been likely to assist economic recovery? As far as the exchange rate is concerned, would he agree that the effect depends on the elasticity of demand for exports and imports? Have the Government made an up-to-date estimate of these?

My Lords, I agree with the observation of the noble Lord, Lord Higgins, that we are free to set our own interest rates. As a member of the single currency, we would be bound to the single-currency interest rates. On his second question, the Government’s forecasts take account of elasticities of demand and supply in terms of their effect on the trade account.

My Lords, is my noble friend aware that in economics we rarely have a laboratory experiment with respect to the exchange rate? The exchange rate plunged in 1992 when we left the ERM. For four years from then our share of world exports rose continuously. Therefore the answer to my noble friend’s Question is very simple and straightforward: it is good and it is not bad. The more interesting question is: what is the likely path of the exchange rate this year? If noble Lords opposite want some free financial advice and fancy a punt, my guess is that the forward purchase of sterling over the coming year will be highly profitable.

My Lords, I am not sure there was a question there. We are all reassured, however, that we can rely upon the Peston family for advice.

My Lords, does the Minister agree that devaluing sterling is short-changing our depositors and that competitive devaluations were a very damaging feature of the 1930s?

My Lords, I do not think the market movement in sterling has an effect on the value of deposits. Many factors do, but that is not one within a domestic economy. Nor do I think that we are engaged in any way in a programme of competitive devaluations. Our exchange rate is set according to a free market.

My Lords, when asked about the Government’s exchange rate policy, the Exchequer Secretary said in another place last year:

“By maintaining sound public finances and low inflation the Government contribute to exchange rate stability. This is consistent with their objective of a stable and competitive pound”.—[Official Report, 21/4/08; col. 1674W.]

We do not have sound public finances and we do not have a stable pound. What is the Government’s policy now?

My Lords, we are in a period of extraordinary economic challenge throughout the world. That is reflected in the likewise extraordinary volatility of exchange rates, stock markets and commodity prices. Our long-term commitment is to a competitive currency, which will be a consequence of our inflation targeting. Given that we have a stable inflation-rate target, that should be reflected over the long term in a stable exchange rate against other currencies. It is, however, a medium to long-term objective and not one that assures valuation on a minute-by-minute or day-by-day basis.