I propose to take Question Nos. 8 and 9, together.
I am aware that the most recent official data relating to mid-February last show a year-on-year increase in consumer prices of 3.3 per cent, whereas the corresponding figure at mid-November 1988 was 2.7 per cent.
At budget time there was the reasonable expectation that the annual average inflation rate in 1989 would, again, be less than 3 per cent. This forecast was based on the available assessments of price prospects internationally, and on the usual assumptions of unchanged exchange rates, interest rates and international oil prices. Since the budget, the publication of the mid-February figures and international developments, notably, stronger than expected inflation in our trading partners, the sharp rise in oil prices and the recent increase in German interest rates, point to the annual inflation rate being higher this year — probably in the region of 3.5 per cent.
If prices rise faster because of international events, outside the control of this economy, this is something we have to live with but, of course, we must not compound these effects by our own actions. A higher international inflation trend need not undo the achievement of retaining the inflation rate below the average of our trading partners. This is what matters for our trade performance, our growth prospects and, ultimately, for a continuation of the recovery in employment. The key to success in this regard, I would stress, is moderation in domestic costs and charges; in that context I would remind the House that, in sharp contrast to the previous years, taxation policy under this Government, to the extent that prudent budgetary policy allowed, has underpinned low inflation.
The concern I have voiced about the latest figures relates to the position that of the rise in prices in the February 1989 quarter — 1 per cent, leaving aside non-recurring budget effects — a significant proportion seems to have been due to factors within this economy. Some of these were once-off, but the underlying figure was at the high end of last year's quarterly changes. If this trend were to continue, or if more buoyant economic conditions and external price stimuli were to be exploited to increase profits or pay, the improvement in our competitive position would be jeopardised and we would all end up worse off.
This Government's attitude to inflation is clear and unequivocal. Having got inflation down to very low levels, we are determined to keep it there. This is why we have stressed the need for vigilance throughout the community in relation to prices.
The Government have not had consultations with the Central Bank on the general question of inflation.