1951-64 Economic Developments Flashcards
What things do I need to mention on economic developments between 1951-1964?
The post war boom
Balance of payments issues
Stop-go policies
What was the post war boom?
After 2nd world war economy recovered and grew
Worldwide recovery led to increase in global trade
Productivity went up
Full employment in 1955
Led to increase in wages
Tax cuts
More consumer goods bought
Encouraged more investment and growth=rising living standards
Rise in Britain not as strong as in other countries e.g. Germany, Italy and the Netherlands
What were the balance of payments issues in 1951-1964
Increased consumer demand would lead to Britain importing more than it exported
Creates a balance of payments problem (running down foreign currency reserves or too much reliance on foreign borrowing) and run on the pound
Run on pound happens because:
When foreign reserves are low struggle to support currency in Fx markets
If investors think currency overvalued they sell it- driving value down
Foreign and domestic investors may withdraw capital from country, fearing devaluation (depletes reserves even faster)
If a country has foreign denominated debt then falling currency makes repayments more expensive, worsening crisis
People rush to convert local currency into stable currency , such as USD or gold
May have to raise interest rates to attract foreign investors to invest in government bonds and bank deposits- improving the capital account
Other than BOP issues what was the other downside of the post war boom?
Economy growing faster than increases in productivity = Inflation
How did the conservative government counter the threat of inflation 51-64
Stop-go economics
What was stop-go economics?
When the economy slowed down too much government lowered interest rates to encourage growth
When the economy overheated and inflation up raised interest rates and controlled wage increases
How did Suez crisis show weaknesses in British economy?
Loss of international confidence in British economy
Investors began selling off sterling, creating currency crisis due to low reserves
Uk heavily reliant on US financial support- lacked the economic independence to sustain action
The US refused to support the invasion and the pound sterling on currency markets
Needed an IMF loan
Worsened BOP defecit
What policies were suggested by Powell and Thorneycroft to manage the economy post Suez?
Monetarism- control the money supply, rather than demand
What monetarist methods were proposed to MacMillan?
Limit government spending
Cuts house building
Cuts to welfare budget
Cuts to public services
Did MacMillan follow the monetarist methods?
No, thought these would be unpopular with the electorate
Good decision- as economy recovered quickly after Suez
Sterling recovered against USD and allowed tax cuts
Fastest growth between 60-64
Were the stop go policies a success?
Not really- failed to achieve SUSTAINABLE growth- led to repeated cycles of inflation, trade deficits and economic stagnation
What did the government introduce to keep economy stable during stop-go phases?
1961 IMF loan/pay pause
1961 National Economic Development Council- to plan economic growth
1961 rethink on EEC applied to join (rejected in 1963)
1962 National Incomes Commission to manage wages and prices
Defecit of £800m by 1964
