CAB129-52 — Page 75

Printed for the Cabinet. May 1952

Page 75

SECRET

C. (52) 172

· CABINET OFFICE

RECORD COPY

23rd May, 1952

CABINET

Copy No.72

THE BALANCE OF PAYMENTS OUTLOOK

MEMORANDUM BY THE CHANCELLOR OF THE EXCHEQUER

Introduction and Summary.

This paper supplements my memorandum on Economic Policy (C. (52) 166): I am circulating it for the information of my colleagues; I do not ask for any decisions. Its purpose is to set out the balance of payments background for the series of papers which we shall be considering. But the points which stand

out are:

(i) The scale of our capital commitments and the risks of our capital position are such that the United Kingdom must run a current balance of payments surplus of at least £300 million a year.

(ii) Our ability to get through 1952-53 without an open sterling crisis is wholly unassured, and the only chance of success is by strict economy in imports and ruthless concentration upon exports.

(iii) The outlook after the middle of 1953 is no more promising than the outlook for the next twelve months; there is no "hump" but a continuing mountain range of difficulties.

(iv) The only way out, short of a drastic revision of our external commitments of all kinds, is an expansion of exports in the next two years, pre- dominantly to non-sterling countries, of the order of 20 per cent. (or, say, £600 million) above the 1951 level.

2. In order to overcome the balance of payments crisis, and to prevent repeated crises in future, three things are necessary:—

(a) the United Kingdom must pay its way abroad;

(b) the sterling area as a whole must do the same;

(c) our external capital position must be greatly strengthened.

3. In C. (52) 166, paragraphs 2 to 10, I set out some of the major factors in our economic position which have a bearing on what is needed to carry out these tasks. My objective in this paper is to describe the outlook in more detail, and to show that in my view:-

(a) the task of paying our way involves not merely a balance but a large surplus

on the United Kingdom current account.

(b) the task is a long-term one and not merely a problem of getting over a

"hump" in the next few months.

(c) The only solution consistent with maintaining our present external military, political and financial commitments lies in the improvement of our competitive power and the expansion of our export earnings on a scale far greater than has yet been envisaged.

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