British Economy Since Devaluation

Report Outline
Problems of the Post-Devaluation Period
Years of Trial in Britain's Economy
Outlook for Economic Progress in 1970s
Special Focus

Problems of the Post-Devaluation Period

Uncertainty Over Success of Economic Strategy

Nearly a year has elapsed since British Prime Minister Harold Wilson stunned his people and the world by announcing a devaluation of the pound sterling. The 14.3 per cent reduction in the official value of the pound—from $2.80 to $2.40 in terms of U.S. currency—brought to a dramatic conclusion the most severe sterling crisis in a decade. Fifty-five million Britishers swallowed the bitter medicine on Nov. 18, 1967, in a determined effort to promote the recovery of their ailing economy and to right the country's balance of international payments.

On the eve of the first anniversary of devaluation, British economists and commentators are far from agreement on the results of the step taken last year. Optimists contend that the economy is at last moving, albeit with agonizing slowness, toward equilibrium in the balance of payments. They believe that business confidence and prospects are rising and that devaluation, combined with a number of tough domestic reforms, will finally take Great Britain into the promised land after further hard slogging in 1969. Less sanguine experts point to another large trade deficit in 1968; to rising unemployment and persisting labor-management conflicts; and to the substantially higher cost of living traceable to devaluation. They fear a new run on the pound in international money markets during the coming winter if world trade turns down a bit.

The fate of the British economy is of more than casual interest to the United States. Devaluation a year ago touched off a speculative attack on the dollar that threatened to run U.S. gold stocks down to an unacceptable level. To end the drain, Washington was forced to give up its practice of selling gold on international markets to all comers at $35 an ounce. The new two-tier gold price policy seems to be working well, but it could collapse along with other cooperative arrangements if the pound comes under attack again. Moreover, Great Britain is a leading market for American exports, and U.S. direct investments in Britain total $5.3 billion.