CAB129-52 — Page 173

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III The Prospects for the First Half of 1953 and Later

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23. As we look forward to the first half of 1953, the uncertainty grows. Between now and then, there may be major changes in the world situation. In particular, there may be a decisive turn in the United States economy either a recrudescence of inflation or a more marked deflationary movement. A relatively small movement, by the standards of the United States economy, can have a very great impact upon world commodity prices and upon the course of trade generally. We have made estimates for the first half of 1953 on the assumption, broadly speaking, that the present state of world affairs continues, but with some upturn in the more depressed trades, such as textiles.

The Balance of Payments Estimates

24. Our estimates on this basis, which assume a continuation of existing policies, suggest that we should be a good deal nearer balance in the first half of 1953:

TABLE 5.-Transactions with Non-Sterling World

£ million

2nd half 1952

1st half 1953

United Kingdom—

Imports

921

895

Exports and re-exports

730

755

Overseas Government expenditure Invisibles (net)

53

57

+ 3

+94

Current balance

-241

-103

...

Defence Aid

115

69

Current (including Defence Aid) Debt redemption, &c.

-126

34

- 31

5

R.S.A. balance

20

52

Total non-sterling surplus/deficit

-177

+13-

25. The improvement-subject to a large margin of uncertainty-is somewhat exaggerated, for the result in the first half of 1953 should benefit from a number of seasonal and fortuitous factors. Moreover, the results depend very heavily upon an improvement in the position of the other sterling area countries; the United Kingdom would still fall short of the announced objective of current balance with the non-sterling world. Nevertheless, there is hope to be derived from the fact that if we can succeed in preventing a loss of gold reserves in the second half of this year, there will be fair prospects of continuing to do so in the first half of 1953.

26. When we look beyond the middle of 1953, however, it is clear that only a great expansion of our exports to non-sterling countries, or a major and sustained improvement in the net foreign earnings of the other sterling area countries com- bined with an expansion of production to save non-sterling imports, can prevent a further worsening of the position. Compared with the first half of 1953, there will be the usual liability of £65 million in the second half-year for interest and repayment of the United States and Canadian credits; there is a fortuitous accumu- lated tax receipt from an American oil company of £25 million in the first half of 1953; we cannot rely on any Defence Aid in the second half of 1953 (£69 million in first half); we may have to pay anything up to £65 million in a half-year for our troops in Germany; the other sterling area countries' earnings in the second half-year are seasonally at least £50 million lower than in the first half, and to the extent that they are now making once-for-all import savings, their expenditures may rise. There are potential improvements on the other side (e.g., in^oil). the items listed above total over £250 million. Consequently, if we cannot expand our earnings substantially, our prospects for the second half of 1953 in a year's time may well look just as difficult as the prospects for the second half of 1952 look to-day.

The Level of Imports for the First Half of 1953

But

27. It is too early yet to lay down a definite programme of imports for the first half of 1953. The experience of the last year, however, coupled with the fact that our gold reserves are now so low that we cannot draw significantly upon them

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