UK Balance of Payments Crisis 1952 - lessons from history

“Gold and dollar reserves continue to fall at an alarming rate, and I must inform my colleagues that, unless we tackle this situation with great resolution, there is a real likelihood that by the middle of the year we shall not be able to hold the pound at $2.80."

This in a memorandum to Cabinet from the Chancellor of the Exchequer The Right Hon R.A Butler 19th January 1952.

"We are faced with a substantial balance of payments deficit. Two factors have been responsible. On the import side, prices have risen against us and there have been increases in volume too. On the export side, the general conditions are at present unfavourable and our competitive position in certain industries appears to be deteriorating.

Unless we can stem this tide, it will swallow us up, and we shall reach a point at which we can no longer buy the basic food and raw materials on which this island depends.

We must pay our way, and we must be seen to be paying our way. This must be the first and central objective. For if we fail in this, all other objectives—defence, the strength of the Commonwealth, full employment, social welfare, better food—will collapse like a house of cards.

We have no hope of getting straight unless we can make our exports plentiful and competitive across the whole range of products, by price and by quality and by delivery date.”

To balance the books, government had to improve the position by about £150 million. £92 million could be found by consuming stockpiles of raw materials and tobacco. In addition, reducing the tourist holiday allowance to just £25 would assist the process.

The remainder would have to be found by reductions in food purchases according to the Chancellor. Reduced meat imports from Argentina, no bacon from Poland and no cheese from Canada. Amongst other measures,  we had to stop buying sugar, dried fruit, milk products and tinned salmon.

Hopes of a continued mild Winter, could lead to the cancellation of some coal contracts perhaps saving an additional £3m. In addition, if the US would agree to buy 25,000 tones of rubber stocks, this could generate an additional £8 million. Viscount Swinton, the Chancellor of the Duchy of Lancaster was instructed to make the call.

And so by little steps, tinned salmon, coal, rubber and the rest, the economy survived and the house of cards did not collapse. The exchange rate was maintained and the balance of payments crisis was resolved - once and for all? Well almost.

Fun with the National Archives  Cabinet Papers

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