Britain’s economy 1951-64
Balance of payments
The growth in wages was outstripping the rate of
increase in production and this brought inflation.
One of the main issues for the Conservative party
was how to keep prices steady while maintaining
growth and employment. The pattern where the
government attempted to control growth when the
Post-war boom: economy was in danger of overheating is known as
After the war there were many improvements ‘stop-go’ economics. Higher salaries have created
economically. Firstly, the service industries grew a large internal consumer demand, they did not
and the productivity increased, meaning more encourage manufacturers to increase their export
was produced per worker per shift. Furthermore, trade leading to a trade deficit which caused
there was a rise in wages and by 1995 Great problems with the balance of payments. Balance of
Britain had achieved almost full employment. payments includes invisible imports and exports,
Supporting the economic success, we see that the balance of trade is part of the balance of
the Birth rate rose by 5% which shows that payments. Balance of trade is the difference
people felt that they were financially secure between the goods that a country imports and what
enough to raise a family and have more children it exports. In 1961, worries about the economy
than before. Although there were many benefits, overheating forced the government to introduce a
there were also negatives behind the scenes. For ‘pay pause’ to hold down wage inflation and to ask
example, even though Britain had high worker
for a loan from the IMF. The also became clear that
productivity, the French and German workers still
economic growth in Europe, especially in West
had higher productivity rates. Additionally, even
Germany was leaving Britain behind.
though British Industrial production was
increasing from 1952-1959, it was increasing at a
much slower rate compared to most other
countries e.g West germany and France. Here it
is obvious that there were many economic
improvements but compared to other countries,
they weren’t as successful as they made it seem.
Stop and go policies:
The stop and go policies aimed to fix any balance of payments issues by targeting the balance of trade. To
do this, Interest rates were constantly altered in order to stop and restart consumer spending. HIgh interest
rates were imposed when imports exceed exports, in order to lower borrowing and incentivise saving to
reduce aggregate demand and therefore reduce imports. Similarly, low interest rates created less incentive
for spending and made borrowing cheaper, increasing spending and aggregate demand, the cycle would
continue. Living standards increased at this time, as real wages increased and gave british people more
access to housing and imported goods. As well as this, this prevented the british public from any drastic
economic depressions or inflation. However stop and go policies had to be used consistently, and was not a
good long term solution in ensuring a slow rise in inflation and high growth, so it had to be adjusted
constantly. As well as this, stop and go policies could be seen as unsuccessful by the fact that in 1961 the
government had made an application to the EEC showing concern for the longevity of this policy. this
application was rejected in 1963. The long term solution that Macmillan planned was to create the national
economic development council in 1961, and in 1962 a national incomes commission was established to
manage wages and prices, again showing the lack of trust in the stop and go system. Public expenditure
had to be cut and at the time on the 1964 elections, there was an 800 million pound deficit .
