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External Economic Situation

Volume 463: debated on Wednesday 6 April 1949

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The Committee will recall that a year ago today when I was addressing them, we were still uncertain as to the outcome of the legislation in the United States of America necessary to support the European Recovery Programme. Fortunately, that uncertainty was not long afterwards removed by an assurance of active and generous help, and this assistance, and that given us by the re-opening of our drawings upon the Canadian credit, has enabled us during the past year to get on with the job of our own recovery and of contributing to that of our partners in the O.E.E.C.

We can, I think, claim that we have made excellent use of the opportunity thus afforded to us. The year 1948 has been one of great achievement for the British people, and this fact can, and should, encourage us in the heavy task that still lies ahead of us. For there does, indeed, still remain a serious and baffling problem in our dollar balance, a problem for which we must try to find a solution, in common with the other participants in O.E.E.C. by at latest, 1952,when E.R.P. will have come to an end.

There are a few outstanding indications of our achievements in 1948 to which I would draw the attention of the Committee. The most notable features of the year were the rapid increase in our production and the arrest of the inflationary tendency in our economy. In the result we were able, on our overseas account, to reduce an adverse balance of payments of £630 million in 1947 to about £120 million according to the provisional figures for 1948; and in the latter half of last year we achieved an overall balance in our overseas payments. Despite this welcome fact, however, there remained a formidable deficit on dollar account, amounting over the year to no less than £423 million for the sterling area as a whole. We could, of course, only carry such a deficit with the help of the exceptional outside assistance we have received from the United States and Canada.

One of the factors that increased our difficulties, especially during the first half of the year, was a continuing deterioration in the terms of trade. This meant that we had to export even more goods to buy the same volume of imports. But, despite this drawback, we were able to realise, without further inflation, a small improvement in the supplies of consumption goods generally, and an increase in investment in nearly every field of productive activity—in basic services, agriculture and the manufacturing industries.

Our expansion in exports was most encouraging. We exceeded the targets that had been set, even though many people had proclaimed them as far too optimistic, and the total volume of exports for the year was 135 per cent. of the 1938 volume, an increase of some 25 per cent. over and above the year 1947. And this increase was general over practically the whole field of exports and to almost all destinations. The whole of British industry should, therefore, share our congratulations on these results, and I am sure we were particularly glad to see coal featuring once more as a direct export in considerable volume. The target for the end of 1949 has been set at 155 per cent. of 1938 though, as explained in the Survey, the individual industrial targets add up to a somewhat higher total. The January volume was 162 per cent. and in the short month of February it was 143 per cent., and we have to try to maintain something between those two rates—an average of a little more than 150 per cent.—throughout the year. That will not be an easy task.

In many countries the end of the sellers' market has been, or is being, reached and, in addition, there are many restrictions against importation of what are considered by the importing countries as less essential goods. It will only be by paying the closest attention to the quality and price of our exports that we shall be able to maintain the necessary volume. Over the year as a whole we aim to increase our exports by 10 per cent. over 1948.

Another marked improvement in 1948 was our net invisible income, which is provisionally estimated as a surplus of £100 million as against a deficit in 1947 of £190 million. This is a field in which forecasting is particularly difficult, but in the current year we expect the receipts from post-war payments and surplus disposals to decline, and though we hope for some decrease in Government overseas expenditure, this must, in the existing international situation, remain a heavy and substantial item.

We hope, however, for a gradual increase in our net receipts from shipping and in the earnings of our oil companies, so that, on the whole, we estimate a surplus of about £35 million for the first half of 1949. Owing to the many uncertainties we cannot go beyond the first six months of 1949 in our estimates, though there is no present reason why the second half should be any worse than the first. Unless, therefore, there is a fall in the prices of our exports, we expect a substantially larger overseas income this year than last year. What we can purchase with that income will depend, of course, upon the terms of trade, and upon what is available in the various markets of the world.

There are some signs that the long period of progressive increase in the world prices of primary products is coming to an end, and the International Wheat Agreement is to be welcomed, both as leading to some reduction in prices and as providing the means to stop a precipitate fall in price, which might be equally disastrous to the buyer as it would be to the seller. We must remem- ber, however, that a fall in the prices of primary commodities is not necessarily a net gain in our balance of payments, for it is bound to react upon our own export prices and must also affect the amount of dollars earned by the sterling area from the sale of primary products to North America.

The forecast for the first half of 1949 shows a marked increase in imports of raw materials, a large part of which is to make up for a shortfall in imports in the last half of 1948, and there is a more modest increase in food and feeding-stuffs. We thus expect to be able to maintain adequate supplies of raw materials, except where there is a world shortage.

It is not possible, as yet, to say with any certainty what our position will be as to the importation of animal feeding-stuffs, though we hope at least to be able to maintain the existing ration scales. With the greatly improved methods of grass conservation fully developed and applied, we should be able to increase our livestock and yet decrease our dependence upon imported feedingstuffs. There should be a small improvement in the supply of foodstuffs generally, with the exception of meat, on which the supply difficulties have been reported to the House by my right hon. Friend the Minister of Food. [HON. MEMBERS: "No."] In general, we should be able to maintain a high enough level of imports of raw materials throughout 1949 for a somewhat increased volume of production, and of foodstuffs to maintain at least our present standards.

So far as our overall balance of payments is concerned, we hope to maintain the approximate balance we have now achieved. Thus, for the first time for very many years the value of the goods and services we receive from the rest of the world is being matched by the total of the goods and services which we export to or perform for the rest of the world. To have reached that state of affairs should give us honest satisfaction, and should make us determined not to go back from a position which we have won with such great and sustained efforts. [AN HON. MEMBER: "Not yet."] But we must not allow it to conceal from us the size and gravity of our dollar deficit that remains. Even to maintain our overall balance requires a continual and continuing effort. Amongst the many factors that are against us, one is the difficulty we must expect from increased competition. Our export drive owes part of its success to our quick start after the war; but for this very reason we shall find it increasingly difficult to maintain our high volume of exports as the growing efforts of other countries bring sharper competition.