Economic developments

• • Great Depression
  • WW2
  • Rebuilding of Britain under Atlee 


  What was the economy o f1951 influenced by?
• Ended in 1954: some enjoyed a higher standard of living after this however for the poorer this meant that a constant supply of food was cut.

  Food rationing:
• By 1961, there was 51 million people in Britain, which was 2 million more than in 1951 after WW2. 


  Growth in population:
• • By 1955, it was estimated full employment had been reached with only 200,000 unemployed due to the booming overseas trade which bought high levels of exports and investments.
  • More people working in the electrical and engineering area of work.

  Employment:
• By 1960, nearly 5 million people were employed in service industries (1 in 5 people in the population). 


  Service industries:
• Affluence: with economic growth and rise in low unemployment also came rising wages. In the run up to the 1955 election Butler used the 'give away' budget which provided middle classes with £134 million in tax cut breaks. Consumerism was also on the rise which meant people could afford to buy new cars, appliances and other luxuries.
• The growth of wages and higher production levels also bought about higher inflation. Macmillan needed to keep prices steady which was difficult because he needed to turn to trade unions and try to convice them to keep wages increasing wages, like in the coal industry who wanted higher wages due to the difficult nature of their job. 


  What affect did the growth of affluence have on the economy:
• Government controls aimed to avoid excess inflation. This happened when imports exceeded exports which caused a balance of payments crisis, in turn meaning policies would be created to reverse this (stop) until import levels decreased back down (go). 


  What did 'stop-go' consist of:
• • Mainly it's weakness
  • Started run on the pound (rapid fall in the pound in comparison to international currencies)
  • Thorneycroft: wanted to limit wage increases and cut money supply as he believed in monetarism. 


  What did the Suez crisis reveal about Britain's financial situation:
• • Not a lasting effect on conservative government as it improved it drastically in 1959
  • Sterling regained it's value quickly against the dollar
  • Economy expanded so much that: tax cut budget of April 1959 led to £370 million it being higher than Butler's give away budget. 


  Financial crisis:
• • holding down of wage inflation
  • loan from IMF
  • Problem with balance of payments and stop-go policies
  • At this point it was clear that Britain's economy was lagging behind those of countries like West Germany in Europe, this is why we try to join the EEC in 1961. 


  'Pay Pause' 1961
• • Review of cutting public expenditure
  • Proposed: massive cuts in Britain's rail networks and closure of more than 30% of the rial network, caused public outrage.
  • Stations were axed which meant that more rural areas were isolated.

  Beeching Report of 1963
• • Sluggish
  • After 1957, Butler's main policies continued (mixed economy and loose Keynesianism)

  The British economy in general:
• Taxes and interest rates were lowered.

  'Give away budget'
• It was often the case that some parties in opposition would use budgets too often for short-term political gain. For example the 1959 budget. In the long-term this was bad for the economy because it would mean that these tax cuts would encouraged consumer spending, leading to higher inflation. To tackle this, tax and interest rates rise as well as cuts in public spending.


  Criticisms of the budget politics;
• A balance of payment deficit of £800 million as in the go stage there was too much of an increase in demand for goods that could not be met. 


  What did the stop-go policy result in by the end of 1964:
• Mixture of stagnation and inflation which meant that the industry was declining while inflation was still climbing. This makes the economy more difficult to manage and vulnerable to unforeseen circumstances.

  Stagflation:
• • GDP was lowest in Europe (2.3% compared to 5.6% in Italy).
  • Reason: high military and naval expenditure as it had bases around the world and expensive nuclear weapons which none of the other countries like Italy did.
  • By 1964 military spending reached £1.7 billion, 10% of the GDP.

  What was Britain's Industrial growth situation during this time?