1 economic challenges in 1918 and post-war boom, crisis, and recovery, 1918-1939

Question 1

1918 economic damage

1918 economic damage

Answer 1

• government thought the war would be shorter, and use less resources
• wall st loaned britain large sums of money
• German U-boats sank 40% of British merchant shipping
• britains industry forced to switch to war production rather than exporting
• country lost over 3/4 of a million men
• total cost £3.25b

Question 2

1918 economic damage

balance of payments

Answer 2

negative balance of payments throughout the 1920s. By 1920 the total British debt was £8b, the same year the annual budget came to £800m, but £300m went straight to debt repayment.
- income tax rose by 25% from 1908-1924 in order to aid repay of debts

Question 3

crisis

recessions. 1920-1921, and 1929-1934 + following

Answer 3

• even during booms, Britains unemployment remained 10% of the working population between 1921-1938.
• there were periods of recovery after the recessions, in the mid 1920s, consumer demand increased and unemployment declined in most areas excluding industrial areas such as Tyneside
• light industries developed between 1934-1939 but heavy industry declined even more

Question 4

Post war boom

post war boom

Answer 4

• recession in 1920 after a short lived boom
• individuals had been unable to spend savings because of restrictions
• throughout 1919 consumers bought luxury items
• buisinesses issued new shares, and more money went into the london stock market than any other time in history
• total amount of new shares increased from £65m in 1918 to £384m in 1920

Question 5

Recession 1920-1921

recession, 1920-1921

Answer 5

• investors keen to buy industry, monopoly britain had over these indsutries vanished as the USA, Japan, and South America were now competitors, the british ones recieved little investment over the years so were outdated
• global trade didn’t return to pre-1914 levels as predicted
• goods became expensive and in short supply, leading to a recession
• unemployment levels rapidly increased to 12%.

Question 6

Recession, 1920-1921

1921 unemployment, cost of living, wages

Answer 6

• unemployment 1921 2m workers unemployed and areas of the country like South Wales and Tyneside were deeply depressed as old industries
• cost of living increased by 25% between 1918-1920
• cost of living increased by 25% between 1918-1920

Question 7

Factors which led to the recession, 1920-1921

deflation

Answer 7

• the government cut spending by 75% beween 1918-1920
• bank of england raised interest rates to 7% in order to return the value of the pound to its pre war levels
• it became very expensive to borrow money
• this drained the money available for economic spending
• by the end of the decade debt had risen from 120% of GDP to 160%

Question 8

Factors which led to the recession, 1920-1921

loss of export trade

Answer 8

several new foreign manufacturing competitiors who took advantage of the disruption to british trade
- EG. Japan started to supply India and South East Asia with cotton and silk during WW1

Question 9

Factors which led to the recession, 1920-1921

underinvestment

Answer 9

• output in the steel industry was lower than Britain’s rivals
• British manufactuers were importing american steel with superiro quality/price
• 1937: british steel industries producing 83,000 tonnes per year, Americans producing 210,000 tonnes per year, Germany 125,000 tonnes.

Question 10

Factors which led to the recession, 1920-1921

industrial relations

Answer 10

• 1919 to prevent a strike, DLG bought off british workers in the main industries with generous pay and working hours
• the new 8 hour workinf day resulted in a 13% decrease in working hours, but no increase in productivity
• wages staged high, meaning products stayed overpriced and uncompetitive.

Question 11

Attempts to solve economic problems, 1921-1924

The Geddes Axe

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Answer 11

Sir Eric Geddes was appointed to implement tax cuts on public spending
- he reccomended £87m of cuts in the 1922-1923 budget, mostly coming from the military
- health, welfare, housing budgets reduced to £182.1m in 1922-1923

Question 12

attempts to solve economic problems, 1921-1924

tariffs and free trade

Answer 12

• for most of the previous century britain had adopted free trade ; when domstic industries compete with foreign competitors, meaning lower prices, and a lack of threat of protectionist tariffs
• this, on the other hand, meant competitive foreign buisinesses can launch Britain into bankeruptcy if their products are better
• when DLG left office in 1922 (free trade warrior), the party was divided over free trade and protectionism, leading to the 1st labour gov.