§ Turning to the year ahead, that is the period between the first half of 1969 and the first half of 1970, the central forecast is that on the basis of present policies and levels of taxation, output will grow by about 3½ per cent. This figure is made up of relatively slower growth in the earlier part of 1969, followed by a quicken towards the end of the year as world trade, and hence our exports, pick up after some levelling-off. I describe the estimate of 3½ per cent. as "central" because there is necessarily a substantial range of possibility on either side of that figure. It is based on the expectation that the main sources of expansion in 1969 will be exports and investment. Some limited growth in private consumption is allowed for. Public consumption, reflecting the decisions which were presented to the House in the White Paper in February, will show only a very small increase, within the totals laid down by the Government in January 1968.
§ If the economy developed in accordance with this forecast, the outcome would be neither intolerable nor totally satisfactory. Output would grow slightly in excess of productive potential, and there would be some further decline in unemployment. Private fixed investment as a whole would rise significantly, and investment by manufacturing industry in plant and equipment still more strongly. There would be a further vigorous growth in exports. Imports would benefit from the absence of last year's special factors, and would rise only moderately. Taking current and long-term capital transactions together, the balance of payments should cross the line from deficit into surplus fairly soon, but in the absence of further action it is unlikely that within the next year we would attain the substantial rate of surplus which is essential.
§ Although the trend is right, this is not a result which we can or should accept. There is no magic about a particular figure for a surplus. But that it needs to be substantial and continuing is beyond doubt. I therefore regard it as essential to take measures to fortify our progress.1002
§ I must therefore limit the growth of home demand so that there is room for a substantial and continuing balance of payments surplus to develop. The continued growth of exports and the process of import substitution just will not take place if, as is already happening in a number of vital sectors, we allow ourselves to be pressed close to the ceiling of our productive capacity. The opportunity of increased exports is there. Particularly in the case of capital goods, a considerable part of the stimulus of devaluation has not yet worked its way through. And even in the case of consumer goods, there is considerable evidence that long delivery dates, a lack of sustained determination to sell abroad, and inadequate after-sales service, are still inhibiting the full success of our national efforts. As for import-substitutution, it has hardly yet begun.
§ Nor should we be too much influenced by recent indications that consumer demand may be losing strength. If that is so, it is in our present circumstances a very good thing. But it may only be temporary. Without further action, there may well be a subsequent revival. We have to remember that in the second quarter of last year consumption was very much below the admittedly inflated level of the first quarter, and almost exactly in line with the forecast. That did not prevent it moving significantly out of line in the third and fourth quarters. There is no magic about a once-for-all adjustment of the economy at the time of the annual spring rite of the Budget. It may always he necessary to make subsequent changes, either up or down. But it is nonetheless the case that a Chancellor at Budget-time ought to make the best judgment he can for the ensuing twelve months. My judgment is that, to give us the full possibility of seizing our balance of payments opportunities, further measures to restrain consumption are necessary.
§ The resulting prospect for the economy, after the changes I have to propose, is a rate of growth on the basis of the central forecast of almost 3 per cent. But that forecast could be exceeded either for good or bad reasons. It could be exceeded for bad reasons if real incomes, and consequently consumption, were to grow more quickly than expected. It could be exceeded for good reasons if exports were to do better than 1003 we have allowed for. What I must ensure is that there is certainly room for movement in the right direction, and that even a deviation in the wrong direction would not leave us in an intolerable balance of payments situation. The principle I am following is therefore the same as that of a year ago when I said that "the rate of growth … must be left to a large extent to depend on the way in which exports respond …". Last year that helped to bring us a rate of growth well above target. This year it could do the same.
§ This Budget is therefore designed, not to change the balance of payments strategy we have been pursuing, but to continue and to strengthen it. It is, of course, the case that after a year of progress, real but disappointingly slow, no-one in my position could dismiss without thought the views of those who urge some entirely different strategy—a siege economy, an expansion in home demand, a floating pound, or whatever it may be. It is always tempting, whenever the going is difficult, to seek an alternative, easier course. It is always attractive to believe that some method which has not been tried will be the panacea. Before they were introduced a lot of very different people were inclined to endow import deposits with this quality. Useful though they have been, they are certainly not that. Nor, I believe, are any of the other apparently easy ways out. The hard truth is that there is no painless cure to a stubborn balance of payments deficit. All the other courses urged upon me, apart from their other disadvantages, have one thing in common. They would all be almost certain to worsen our balance of payments over the crucial next six months. In any long struggle—and I never said this one would be less than two years—there is always a moment when it is most tempting and most wrong to switch strategy. We are now at almost precisely that moment. I do not propose to weaken, or to switch our main strategy.