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Mr. Clarke: I shall give way in a moment, but as I am still on page 1 of my speech, I should like to make some progress with it. I shall insist on putting on the record, so that those who read Hansard rather than newspapers misled by the Opposition's spin doctors can know, what the summary economic forecast reveals.
The United Kingdom has enjoyed the strongest recovery since 1992 of any major European country. I expect output to continue to grow at a healthy rate of
2½ per cent. this year, strengthening to 3¼ per cent. in 1997. For this year, that is a bit below the 3 per cent. that I expected at the time of the Budget, but all serious commentators have revised down their forecasts for most of the major economies, including the UK, as a result of the slowdown on continental Europe.
The OECD shares my view that the UK will remain easily the fastest growing major European economy in 1996, 1997 and beyond. [Interruption.]
As I turned to that part of the forecast which is extremely encouraging news for this country, I heard the hon. Member for Bolsover (Mr. Skinner) say, "Let's go to sleep". That is the Labour party's reaction to our enterprise economy and the way in which the Government are going. If the hon. Gentleman goes to sleep, let him dream of what would happen if the higher taxes, spending and borrowing of a Government with a Chancellor who has no targets or objectives were ever elected. He will then wake up and find that he is in an extremely attractive economic environment.
Mr. Skinner:
The Chancellor misheard me. When he put his head down and started reading the brief from the new kids on the block, I said that the Tories behind him would now go to sleep, as they probably will. What moral authority does he have to talk to the British people about economic forecasts or anything else when all his Ministers say--he will probably repeat it--that to keep inflation down to 3 per cent., workers outside this building will have to get 3 per cent. or less? Yet he and his hon. and right hon. Friends abstained in the vote on whether every Cabinet Minister should get £103,000. If there is enough money in the country for Cabinet members to get £103,000, why should not pensioners and workers be treated the same?
Mr. Clarke:
Earnings increases in this country are running at the rate of 3½ per cent. this year and that is far below the inflationary pay rises that people such as the hon. Gentleman used to inflict on the British economy whenever we had a flicker of recovery in the past. We have low inflation--the headline level of inflation is 2.3 per cent.--and that is one of the reasons why the real living standards of the people whom he and I represent are increasing. Sensible levels of pay settlements are paid for by productivity and performance. That is the world that the hon. Gentleman woke up to, but still does not like, only a few years ago and it is benefiting his constituents and mine.
In the recent parliamentary pay conflict, I voted in the same Lobby as the hon. Member for Bolsover (Mr. Skinner). It is unusual for our views to coincide--
Mr. Clarke:
I did not abstain on my salary. The figure that the hon. Gentleman cited was for a ministerial salary that I do not receive because it is meant to come into effect in the next Parliament. [Interruption.] When I take office in the next Parliament, it will not be for the money, but for the pleasure of keeping the right hon. Member for Dunfermline, East away from the nation's affairs.
Mr. Malcolm Bruce (Gordon)
rose--
Mr. Clarke:
I shall give way to the Liberal Democrat spokesman in a moment, but I shall give the House a little more good news from the summer economic forecast while I have the chance to keep the debate roughly on the subject before the Labour party changes it to a subject that it would prefer.
Consumer spending will provide the motor for the accelerating growth that everybody--not just I--knows will occur later this year and next. Confidence has been strengthening steadily and the most recent figures from the Confederation of British Industry show reports from retailers of the strongest high street sales growth for more than five years.
Living standards are rising. Tax cuts and faster growth in real earnings mean that a family on average earnings is expected to be about £450 better off in real terms this year compared with last year. That is a substantial improvement. Such families are now £4,500 better off in today's money each year than they were in 1978-89 before the Government took office. My forecast is--and I do not believe that it will be challenged--that real personal disposable income will grow by 2.5 per cent. in 1996 and by 3 per cent. in 1997.
The forecast is not only about stronger consumer demand: I expect investment to strengthen, too. The climate for investment is excellent: growth is strengthening, profitability is high, company finances are strong and company taxes and interest rates are low. For all those reasons, I expect business investment to grow by more than 7 per cent. this year and next. The manufacturing sector should revive as stocks return to desired levels and as demand in Europe recovers.
I turn to the subject of employment.
Dr. Lynne Jones (Birmingham, Selly Oak)
rose--
Mr. Clarke:
Perhaps the hon. Lady has a comment to make about employment.
Dr. Lynne Jones:
The Chancellor talks about increased consumer spending and his forecast suggests that world trade in manufacturing will grow by more than 7 per cent. Is not he worried that manufacturing output in this country is set to rise by only 1.25 per cent? Is not he worried that consumer demand will lead only to an increase in imports because of his failure to create a sound economic manufacturing base?
Mr. Clarke:
We had strong manufacturing employment when the recovery started, but that has stalled largely--not wholly, but largely--because of a fall in activity in our major markets in western Europe. As those markets pick up, there is every sign that manufacturing activity will pick up. The bit of involuntary stock building that seems to have happened will fall away and the manufacturing recovery will continue. These are good times for manufacturing in the United Kingdom and that is why people come to this country from Korea, when they want to manufacture goods, to make the largest investments in western Europe.
The hon. Member for Birmingham, Selly Oak (Dr. Jones) mentioned comparisons in trade growth between this country and the rest of world. One reason for the recent slowdown is that Britain remains strongest in north America and western Europe, which tend to be
among the slower growing markets in the world compared with the seemingly remorseless growth in south-east Asia, Latin America and other emerging markets. We are competitive now in those areas and we have built up an investment portfolio. British firms are active in those areas and the prospects are right for us to gain a share of manufacturing trade.
Mr. Malcolm Bruce:
The Chancellor is painting a rosy picture, as always. He has avoided referring to his borrowing forecast and to his reduced growth forecast. Yesterday, the Governor of the Bank of England said that he was uncomfortable with the current level of borrowing and that the Chancellor should also be uncomfortable with it. He also indicated that interest rates would be able to come down further if we had an independent central bank. In principle, the Chancellor is in favour of going into a monetary union, where we would have to have an independent central bank, and his leaked document said that if we stay out we will need an independent central bank. Is it not time that he made a common-sense decision about it?
Mr. Kenneth Clarke:
The two subjects that the House should consider--if we had an Opposition worthy of the name--are the decisions on inflation and interest rates, and the public finances. They are the issues that we should debate when we look at a summer forecast. We have just heard that the Opposition do not have much to say on inflation and interest rates. On the public finances, it is a little difficult for a shadow Chancellor--who would go for higher taxation and higher spending--to explain where he stands on the public finances, apart from making a noise about them.
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