Business: Britain: Crisis

While Secretary Dillon pointed with pride, his British opposite number, Chancellor of the Exchequer Selwyn Lloyd, wrestled with a new economic crisis. At a luncheon of the Association of British Chambers of Commerce last week, Lloyd tacitly confessed that Britain could no longer afford the economic strain of behaving like a great power, must cut its military expenses and avoid increases in foreign aid. Said Lloyd grimly: “We have been trying to do too much . . . Since the war, we have spent money out of all proportion to our resources to hold the free line throughout the world.”

Immediate cause of Lloyd’s grimness was a new run on sterling that had forced the pound as low as $2.78⅞ in the world’s money markets—its lowest level in four years. Sterling’s weakness sparked rumors that Britain was about to devalue its currency again. This Lloyd emphatically denied—but there was no denying that the economy which supports the pound is seriously ill.

Britain’s basic trouble is that it is not earning enough abroad to support its domestic standard of living. The British trade deficit in May rose nearly 250% to $229 million. Worse yet, Britain’s “invisibles” (earnings from oil, shipping and overseas investments) have declined to the point where they are no longer great enough to cover the traditional British surplus of imports over exports.

To make the trade gap still wider, British exports in the last three months have dropped 4% below the January-February level. One reason is that Britain seems determined to price itself out of foreign markets. In the past twelve months, the British worker’s average wage has risen more than 4% while industrial output has scarcely risen at all. The result: an increase in manufacturers’ costs, which in the end could only be absorbed by charging higher prices.

Under mutual aid agreements worked out three months ago, the central banks of Western Europe last week were supplying the Bank of England with gold and dollars with which to shore up the pound. But the only thing that could strengthen the pound permanently would be a spurt in Britain’s industrial growth rate—currently among the lowest in Western Europe. Said Selwyn Lloyd: “For national economic survival, we must grow . . . We must see to it that wages, salaries and other incomes remain within the limits justified by increased productivity.”