Wilson and the Economy Flashcards
What were the two options for Wilson to respond to the economic crisis of 1964?
Why was he reluctant of both options?
What was Wilson forced to do?
- Devaluation of the Sterling –> which was clearly overvalued
- Deflation –> cutting back economic growth
Devaluation: mindful of painful experience in 1949
- could not succeed without cuts in spending
Deflation: Clarke argues deflation not an option as labour denounced it as stop-go economics
Wilson forced to depend on US support
When was the first sterling crisis? + Why did it happen?
1964
- When Callaghan’s autumn budget kept manifesto pledges to increase pensions + abolished prescription charges
- gold reserves dwindling daily
How was the 1964 sterling crisis solved? *
- Bank rate raised to 7%
- temporary surcharge in imports imposed
- income tax increased
- $300 million international aid from US federal Reserve and European central banks
How was economic recovery following the first sterling crisis?
What did labour do in response?
- early 1965 pound was strengthened and markets recovered
- US support was crucial
- unemployment averaged 1.5% between 1965-66
- In 1966 prices may have been 9% higher but earnings 11% higher
- called an election in 1966 to capitalise from situation
What was the National Plan?
- The Department for Economic Affairs DEA
- Brown at helm - had great potential
- National Plan published in 1965
- idea was that it was possible to improve economic performance by the national coordination of resources and investment
- set goal for sustained growth at 4% per annum
- soon rendered unattainable by government decisions
- Plan had no teeth
- By 1965 lacked all credibility + labours pledge for economic growth withered away
What did Callaghan earn the rep of?
- tax reformer
- introduces selective employment tax
- not enough
When was the second sterling crisis?
1966
Causes of the second sterling crisis? *
- Stimulated by Seamen’s strike
- damaged exports and caused a massive run on reserves
- June monthly trade deficit doubled
What is the solution for the Sterling crisis of 1966?
- The July Package introduced 1966
What was the July package?
- Bank rate at 7%
- cuts in government spending
- hire purchase restrictions
- complete freeze on wage and price increases
Effects of the July Package on Brown?
- Brown and National plan are immediate casualties
- lost credibility and pensioned off to foreign office
- national plan dead
What are the effects of the July Package? *
- short term impressive
- Economy grew by 2%
- Balance of payments for 1966 finished in the Black
But… - plunged into a heavy deficit
- visible trade gap in 1967 of £600 million even wider than 1964
Effects of the July Package on defence cuts?
- Demonstrated serious need for defence cuts
- obvious target was Britain’s presence east of suez
- however, this was exactly what Wilson promised the US he would maintain in exchange for support of the sterling
- early 1967 wilson rejected deal offered by the USA
- instead pans were made for a phased withdrawal of East of Suez
What were the causes of devaluation in 1967? *
- June 1967 - six day war between Israel and Egypt –> temporary oil embargo shattered hopes of balance of payments surplus
- Sep - series of unofficial strikes on docks savagely afflicted exports at critical time –> monthly trade deficit of £107 million
- Foreign loans cast markets into turmoil + cost nation £500 mill
What was devaluation?
- Pound devalued from $2.80 - $2.40
- shock world and caused temporary panic in washington
