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11657-Economic Survey-Galley 16
CHAPTER III
THE BALANCE OF PAYMENTS
The General Problem
86. In 1950, for the first time since the war, the United Kingdom achieved a balance of payments position which, in its broad outlines, could be regarded as reasonably satisfactory. The overall balance of payments showed a surplus of £189 million-the heaviest figure for thirty years, and an improvement of £227 million on 1949 and over £700 million on 1947. The gold and dollar accounts of the Sterling Area showed a surplus of £287 million, compared with deficits of £381 million in 1949 and £1,024 million in 1947. Assisted by receipts under Marshall Aid, the gold and dollar reserves increased by no less than £575 million, considerably more than the associated rise in short-term liabilities (Table 11). This strengthening of the external financial position of the United Kingdom and of the other Sterling Area countries in the course of 1950 made possible the suspension of allotments of Marshall Aid from 1st January, 1951, and the termination of drawings on the Canadian Credit of 1946.
87. In the course of 1950, therefore, the objective of the E.R.P. programme was reached, and the economy of the United Kingdom ceased to depend upon external financial assistance. It is the intention of the Government that this state of affairs should continue during the period of the rearmament pro- gramme. Reference has already been made to the discussions which are now proceeding in N.A.T.O. in order to provide for an equitable distribution of the economic burden of defence. Because of these discussions, and because of the rapid changes which are now in progress, it is impossible to make detailed forecasts of the development of our external position in 1951 and subsequent years. The general character of the problems before us can, however, be clearly indicated.
88. These problems arise essentially from the imposition of a major world rearmament effort upon an already booming world economy. For the United Kingdom this means rising import prices, particularly of raw materials. It means growing pressure on limited world supplies of many commodities and the emergence of shortages which affect production in this country and the supply of goods available for export. It means, further, a substantial increase in purchasing power in the hands of overseas producers of primary commodities, leading to a growing demand for manufactured goods, particularly capital goods for development, which the United Kingdom will find it increasingly difficult to supply. Increased defence production must result in a decline in our exports of many raw materials and semi-manufactured goods, and at least some of the major classes of engineering products. Coal exports will also be much lower this year than last. Increasing costs, mainly the result of high prices of imported raw materials, will inevitably raise export prices, and this will no doubt offset part of the increased cost of imports, but it is unlikely to do more. Simultaneously, the United Kingdom's own import requirements must be expected to grow to permit an expansion in production and to enable depleted stocks to be rebuilt and a beginning to be made with strategic stock- piling of essential food and raw materials.
89. The combined effect of all these developments on the overall balance of payments of the United Kingdom is bound to be unfavourable. If they were left to work themselves out without interference, there can be little doubt that we should again find ourselves confronted with a serious external deficit. This would be a profound setback and would threaten the recently restored place of sterling in the world's markets.
90. The Government has resolved that action must be taken to prevent the United Kingdom's external accounts from deteriorating so far that they relapse into deficit. To the extent that we are stockpiling essential commodities, the gold and dollar reserves may be reduced, or external debt accumulated, without serious consequences, for this amounts in effect to exchanging asset for asset, or matching asset against increased liability. To this extent therefore, a deficit, though regrettable, could be tolerated. The fundamental objective, however, must be to pay fully in exports of goods and services for the goods and services we need to import for current use or consumption from overseas. Our newly won independence must be kept.
91. In face, however, of the large additional burdens imposed on the economy by the defence programme and the continued rise in import prices, the Government has for the time being modified its aim of maintaining a substantial surplus on the balance of payments. The need for such a surplus arises out of the United Kingdom's extensive external obligations, and in particular out of its traditional responsibilites for assisting economic develop- ment overseas, both by gifts and loans and through the drawing down of sterling balances. New forms of such assistance are constantly arising. For instances the United Kingdom has been giving large credits to the Bgopean of 587 Payments Union, thus helping the countries in O.E.E.C. to meet their