CAB128-94_A1b — Page 204

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THE CHANCELLOR OF THE EXCHEQUER said that the trade figures to be published that day would show a net deficit for October of fl 1/2 billion. Though not good, this was the best figure since May and below the £1.7 to £1.8 billion apparently expected by the market. It would also help to confirm the credibility of the forecast of £20 billion for the year as a whole. Export volumes were growing, being now 10 per cent above their level a year ago: and imports were now growing at a lower rate than exports. But sterling had fallen somewhat since the weekend against both the dollar and the D-mark, not helped by press

peculation about the trade deficit.

brief discussion, it was noted that an analysis of imports showed which sectors of industry were weak, in many cases because of the perverse policies of past Governments. Inflation remained a serious problem, even though the present rate of 7.3 per cent was better than at any time during the last Labour Government. It was important to counter press speculation that the Chancellor's forecast for the last quarter of the year would prove too low. Food prices, which normally rose below the general rate of inflation, had contributed to the latest increase this was mainly due to the summer drought, but there were other factors: for example the fall in world coffee prices did not yet seem to be reflected in retail prices. The outlook for pay erlebents was not good: a settlement by Fords at around 10 per cent example, now looked likely.

The Cabinet

Took note.

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IDENTI

FOREIGN AFFAIRS

German Democratic Republic

Previous Reference:

CC(89) 34.3

3. THE FOREIGN AND COMMONWEALTH ¿TARY said that the East German Prime Minister, Herr Hans, seemed seriously committed to reform. Elections were likely to take place in late 1990 or early 1991. East Germany faced serious economic problems caused by the exodus of people and the fall in its currency.

Czechoslovakia

THE FOREIGN AND COMMONWEALTH SECRETARY said that rece demonstrations in Czechoslovakia reflected the desire of the people not to be left behind in the reform process. been enraged at police brutality towards demonstrators November and despised the leadership which appeared to

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