THE ECONOMY
When bad news would be good news
JOCK BRUCE-GARDYNE
The question of what level, within a wide range,' Mr Lawson told the MPs of the Treasury Committee when he last appeared before them at the end of March, 'the current account of the balance of payments is in a particular year is really a very second-order matter.' Thus far have we come from the days when Harold Wilson convinced himself — and most of the chattering classes too, for that matter — that he owed his arrival at No. 10 to Reggie Maudling's trade deficit, and his eviction six years later to a bill for some imported jumbo jets. And yet. . . .
There is no knowing. But I'd hazard a guess that our Nigel was very unamused indeed when they brought him the news of our recorded trade results for March. Not because they were worse than we had been expecting, but because they were a good deal better. Stuff and nonsense, said the Treasury: the figures, like the awful ones for January and February, were still badly distorted by the change in accounting procedures introduced at the beginning of the year at the behest of the EEC. The markets, however, were unpersuaded. Sterling promptly jumped three cents against the dollar, and the Bank had to make some judicious purchases of marks and dollars when (or so they hoped) the PM wasn't looking.
It's a funny old world. Taken at face value, and extrapolated forward, the trade returns for the first quarter of the year implied a deficit of more than £7 billion in 1988. That is better, certainly, than the almost.£10 billion annual shortfall implied by the January and February figures. Even so, it is quite a far cry from the Treasury's budget time guess of £4 billion (and, after allowing for the depreciation in the value of money over the past 20 years, quite enough to have induced Harold Wilson to pack his bags without waiting for the verdict of the polls). And the watching world said 'nice one, Nigel': leaving him to shake his head.
If only, instead, the March trade figures had been as bad as those preceding them, then with luck sterling might have slithered back towards three marks, and there might have been some headroom to reinstate at least the last half point off base rates, which is, one suspects, what the Treasury would like to do — and the Bank of England would certainly like to do. But it was not to be, and we are left in a predicament more familiar to the Germans than it is to us, of trying to persuade the overseas investors that our currency is not at all the snip they think it is. It is, unfortunately, as the Germans have fre- quently discovered, a message which is liable to provoke precisely the response you do not want.
What, then, is Mr Lawson to do (apart from keeping his fingers crossed and hop- ing that last month's trade statistics are bad enough to frighten the horses)? The Saudis are doing their best to help, by refusing to go along with plans for additional cuts on their oil output. But the impact of falls in oil prices on sterling tends to be short-lived nowadays. For more enduring solace the Chancellor could always turn to the Select Committee's judgment on his Budget. For parts of it are, from his point of view, excellent. The MPs 'believe the Chancellor is right to continue to seek greater interna- tional co-operation and co-ordination of monetary and fiscal policies which would encourage greater exchange rate stability combined with a reduction in inflation'. They divine 'a strong case for saying that a stable exchange rate is both a more effec- tive counter-inflationary pressure and more likely to ensure that British industry remains competitive' (apparently because a rise in sterling which is said to be 'unlikely to be sustainable' will encourage firms to chance their arm with price in- creases). And, pace Mrs T., they conclude that you can indeed 'buck the market' — providing you use interest rates for the purpose.
They somewhat spoil the effect, unfortu- nately, by pitching into the Chancellor for going soft on inflation, and for his dogged refusal to satisfy their curiosity about the scale of paper losses to the reserves result- ing from the accumulation of shrinking dollars in 1987. And they complain that 'the dogmatism of earlier years has gra- dually given way to a somewhat obscure 'Philistine! I paid $2,000 for that.'
pragmatism'. Perhaps the unkindest cut of all is a nasty little table which reminds us that the Treasury has been predicting the achievement of a three per cent inflation rate four years out every spring since 1984, rather like the cavalry which charged across the screen in that Bob Hope classic, Road to Rio, at regular intervals, before delivering the curtain line 'we nearly made it'.
Since the members of the Committee, and Mr Beaumont-Dark in particular, ac- cuse the Chancellor each time he comes before them, of 'crucifying' British indus- try with high interest rates, they have a nerve. But the truth is that the latest Committee report, like many of its prede- cessors, offers something for everyone. If the Chancellor searches here for the magic formula which will guarantee a continuing delivery of rapid growth and stable prices, he will search in vain. Perhaps their most original suggestion is that the Government might tack a special 'expenditure reserve' onto its contingency fund when it com- pletes its autumn sums on public expendi- ture. The idea is that whereas the conting- ency fund is there for raiding when extra cash is needed to keep the Tory ranks in line, the 'expenditure reserve' would be there to 'deal with expenditure proposals which only marginally failed to win approv- al.' To which the Treasury's reply is likely to be 'we were not born yesterday, thank you very much!' But then since the present Chancellor's respect for the Select Com- mittee has always been notably well con- tained, I don't suppose he will have approached the latest report with exagger- ated expectations either.
So what is left? Resignation? In recent weeks it has seemed that every time the finance houses in the City feel an urge to drum up business — any business, after all, would be a change just now for some of them — some joker spreads the word around that Mr Lawson has thrown in the sponge. A likely story! Admittedly he has been giving signals in recent months that an irresistible invitation from the Square Mile (or, it just could be, from Grub Street) might not prove resistible. But, failing that, he is certainly not one to lose his appetite over an occasional tiff with his neighbour down the street — let alone the pound's unwelcome popularity. On the contrary. There's nothing like a spat to cheer him up.
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