Economic developments 1951-57
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- Created on: 15-06-17 20:35
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- Economic developments 1951-57
- Post war boom
- Cons were lucky to come to power as the economy was recovering. Food rationing came to an end in July 1954. Wartime austerity was over and there was higher standard of living.
- Global economy was recovering leading to more exports. This helped with employment. By 1955 full employment was achieved with 200k unemployed only. Huge expansion in electrical and engineering work etc. despite fall in agriculture and fishing etc.
- Service industries growing; 1960 5mn employed in service industry (1 in 5 people). Imports were increasing for the same number of exports (29% more), which led to beliefs lives were improving. UK had higher income per head than any other country apart from USA, but growth rates were not very high.
- Balance of payments issues
- Butler had adopted Keysnian economics (achieving economic growth with full employment). But deficits of nearly 700mn occurred with the export market suffering from countries buying from outside sterling area
- Butler's recommendations 1951: credit restrictions, reduce imports, cutting food subsidies, raising interest rates from 2%-4%, cutting ministers' salaries, ending rationing and denationalisation of steel and iron.
- Crisis soon passed (from -56mn in 1946-50 to 132mn in 1956-60) even though Butler was limited initially. Govt effectively were using interest rates and constantly changing them. Taxes were also used. This patter of trade was known as 'stop-go economics'
- Stop-go policies
- 1951-52 STOP: Deflation necessary; interest rates raised and credit restrictions imposed.
- 1953-55 GO: Balance of payments situation recovering so to stimulate this income and purchase taxes were cut
- 1955-59 STOP: The economy was overheating due to high wage demands and too many imports. Interest rates were raised and spending cut.
- 1953-55 GO: Balance of payments situation recovering so to stimulate this income and purchase taxes were cut
- It was criticised due to simply reacting to the economic situation and not making long term policies.
- Britain was not keeping up with Europe and had failed to seize the opportunity to gain huge investments for industrial research.
- Macmillan's Chancellor, Thorneycroft, believed in monetarism; he wanted to stop inflation by limiting wage increases. Between 1946-56, incomes rose by 78% but output only by 28% causing inflation. There was disagreements with this as one-nation Cons believed it would cause unemployment and cutbacks in housing. This divided the party in 1957.
- 1951-52 STOP: Deflation necessary; interest rates raised and credit restrictions imposed.
- Post war boom
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