CAB129-52 — Page 169

Page 169

SECRET

1952-53 BALANCE OF PAYMENTS

REPORT BY THE PROGRAMMES COMMITTEE

1. This report, which is agreed between Departments, states the external financial situation and prospects for the second half of 1952 and the first half of 1953. This shows that the nation cannot afford to buy all the imports upon which Departments are counting to implement present policies--food, raw materials for industry, timber for housing, machinery, &c.

2. The conclusions may be summarised as follows:-

(i) On present policies there is likely to be a loss of gold reserves of the order of £175 million in the second half of this year, subject to a margin of uncertainty of about £125 million each way.

(ii) The gold reserves are now below £600 million. A loss of anything approaching the rate which is indicated would be almost certain to lead to loss of confidence in sterling and an open crisis during the next six months.

(iii) Immediate action by the United Kingdom is indispensable. It must be recognised that it would be impossible to cover the whole £175 million gap by import cuts alone without the most damaging repercussions on the economy.

(iv) About two-thirds of our non-sterling imports in the second half of the year are already committed. The implications of cutting supplies which are not committed are described in detail in a supplementary

note.

(v) For the first half of 1953, when seasonal factors tend to be favourable, we should be much nearer a balance. But the prospects further ahead, on the basis of present policies, indicate the likelihood of further deterioration.

3. We recommend:-

4.

(i) That Ministers take immediate decisions on filling the gap for the second

half of 1952.

(ii) That from the end of 1952 a new programming procedure be adopted in order to secure a quicker response in imports to the changing needs of our balance of payments. This involves a preliminary decision now on the level of non-sterling imports in the first half of 1953, as a guide to forward procurement, and subject to review in October. It is proposed that a level of £800 million be fixed, and that a submission should then be made to Ministers to fix preliminary quotas for importing Depart- ments within this.

I. What has happened in the last Six Months

When the present Administration came into office, a rapid loss of gold reserves was in progress. In recent weeks this has been checked:

TABLE I.-Gold and Dollar Reserves

Loss during

month

£ million

Reserves at end

of period

October-December (average)

111

834

4239

January February

March April May

Page483 of 200

107

727

94

633

26

607

14

593

:

+6

599

Page 169

191

of

Page 170 96 209 have resulted from the current deficit of the United Kingdom