THE ECONOMY
Mr Lawson pulls a fast one
JOCK BRUCE-GARDYNE
It was quite like old times. Twenty years ago, as I recall, the last of the great wits of Westminster, the late Nigel Birch, delight- ed his Tory colleagues (and not only they) with a classic sally at Harold Wilson's expense. 'A moment will come', he pre- dicted, 'some time in the autumn, when the monthly trade returns are less awful than usual. Then the trumpeters of the House- hold Cavalry will be summoned to Down- ing Street to give a fanfare. And the Prime Minister will emerge, wearing his Anguilla star.' (This was shortly after Lord Wilson's hilarious exercise in gunboat diplomacy, when he sent a posse of the Metropolitan Police to the tiny Caribbean island of Anguilla.) For in those days the monthly trade returns did indeed spell the differ- ence between triumph and disaster. Sur- pluses gave the green light to 'pump- priming' of the domestic economy: where- as deficits, invoking the dread spectre of devaluation, led to application of the 'reg- ulator' to increase the rate of purchase tax, hire purchase controls, autumn budgets and all sorts of nameless terrors. So we all waited for the monthly trade statistics with bated breath.
As we did on Tuesday. For years past we have banished the trade figures to the inside pages. I remember an occasion, when I was doing time in the Treasury, when the figures we were going to have to publish were a great deal worse than the market was expecting. Could we not, .1 asked the mandarins, tip the wink in advance to soften the blow? I might have Used a four-letter word in church, such was the scandalised reaction. But I needn't have worried. The figures, when we did publish them, were, quite simply, ignored. So what was so special about Tuesday? The reasons for the displacement of the trade returns from the canon of national demonology remain valid, after all. If we find ourselves running an embarrassingly large surplus or deficit which is putting unwelcome pressure on the pound in one direction or another, we have two straight- forward options. We can simply take it on the chin — or, more precisely, the ex- change rate — as we did in 1980 in one direction, or in 1986 in the other. Or we can adjust interest rates to the extent required to attract or repel foreign savings. We no longer have to go round with a begging box or put the Prime Minister on telly to explain that the pounds in our
pockets have not been devalued when they have. Yet that was the way it felt on Tuesday — until we got the figures, and rushed to tell our friends and neighbours • that of course we had known all along that it had been got up by the press.
Well, I don't know, but I have a sneak- ing feeling that my old friend and co- author pulled a fast one. I read it this way. The trade returns for May — £1.1 billion in the red on merchandise, and £525 million overall — had been proper horrid. Those for June, he must, I think, have know, were going to be a great deal better, although not exactly famous. We were still, after all, £750 million out on your actual goods. Left to their own devices, they might have been interpreted by a morose market-place as more bad news. So why not a pre-emptive strike?
By telling the Bank of England to jack up interest rates ten days ago, when the financial markets dozed uneasily beneath the August rains, he aimed to hit two targets. He wrong-footed those building societies — the Halifax and Abbey Nation- al — which had sought to steal a march on the competition by cutting mortgage rates, and thereby called all the lending institu- tions to order. At the same time he convinced the financial markets generally that Tuesday's trade figures would be frightful. As a result they looked positively fragrant. And if in the process the frenzy of the bull market took a knock, so much the better. It cannot be altogether healthy that a business which was valued for a public quote two years ago at 131/2 million can seek to raise almost £850 million by way of rights issue — and find takers.
If so, good luck to him! It worked a treat. And while it may have appealed to his sense of humour, it also served a serious purpose. Those of us who have been getting our knickers in a twist over all the plastic money clattering about, and all those mortgages to pay for Majorca holi- days, would in other circumstances have regarded 1% on interest rates as quite insufficient for our purposes. But by strik-
ing without warning, when no one was expecting him, the Chancellor made a little go a long way. The Halifax and Abbey National will think twice next time before they cut their rates: and they will not be alone.
So he has departed on his holidays in the best of spirits. And since this week's Spectator may not penetrate his hideaway, let's be bold and utter a few words of caution, in the expectation that they will not spoil his hols.
The OECD's annual check-ups on the health of its individual member countries needs to be taken with a pinch of salt. They are, after all, bowdlerised in advance of publication by the governments concerned. Nevertheless the one that came out last weekend about the UK was, in general, reassuring — not to say flattering. It would have been surprising had it not been, seeing as how we are about the only country around which is expanding as fast as the OECD thinks the whole world should be. It does, however, worry about our excess proneness to inflation. It is surely right to do so. According to the CBI this week's rich diet of statistics only went to show how wise it had been to poo-poo the talk of `over-heating'. Up to a point, Lord Cop- per. For we are shipping in the Porsches and the Lamborghinis at a remarkable rate. Our own manufacturers are accepting increases in the cost of their labour and materials on a scale which they are not likely to absorb for long. And now it is widely rumoured that the Chancellor's own pet monetary statistics,, his treasured 'Little Mo', is playing up. Most worrying of all, though, is the widespread propensity — shared by all accounts, in the Treasury — to believe that restrictive action on the interest rate front can only be permitted so long as it does not excite the pound. That is why it would, I fear, be very premature to conclude that last week's one point rise in interest rates marked the reinstatement of monetary policy. We're still steering by the exchange rate, and the CBI has no cause to fear that its members are going to be deterred from passing on those cost increases to their customers. More's the pity.
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