The Ambassador in the United Kingdom ( Douglas ) to the Secretary of State
2834. For State and Treasury. In general discussion of British financial position with Sir Wilfrid Eady and R.W.B. Clarke at British Treasury the following statements were made:
- British position has deteriorated beyond the estimates given by Dalton in his budget speech. UK deficit on current account for 1947 may reach pounds 600 million.
- Britain not stock-piling dollars as result of recent heavy drawings on credits. In fact, Treasury dollar balance was recently insufficient to take care of purchase of ships negotiated by another Ministry without due notice to Treasury. No figure volunteered for present gold and dollar holdings.
- Canadian credit now half used. Eady stated that one purpose of recent visit to Canada was to explain to Canadians reasons for recent large drawings on Canadian credit representing more rapid use than previously contemplated.
- Greatly increased prices of imported goods an important factor. Due to forward contracts marked rise in US prices has just begun to be felt in recent weeks. During 1946 stocks of consumers goods at local distributing points reduced to dangerous point. While no extensive stock-piling is contemplated, UK Government feels that some additional stocks must be built up in order to protect the public against shortages due to possible local strikes in distribution and transport.
- February fuel crisis will affect export drive for nine months. It is now anticipated that 1947 target of 140 per cent of pre-war exports by volume will not be reached until second quarter of 1948. Estimate of level at close of 1947 is 125 percent. Apparently British do not count on total export value in 1947 to appreciably exceed 1946. Fuel and other dislocations so serious that at conclusion of crisis, production could not rapidly return to level reached before breakdown. Eady stated crisis had broken pattern of economic revival and it proved difficult to get things back into gear.
- In addition to above, timetable envisioned during Washington negotiations for British transitional period has been upset by disappointingly slow economic and political recovery of Europe and Asia. Dutch East Indies cited as outstanding example.
- British recognize that test of their competitive position in exports is impending but test cannot be made in present sellers market.
- British equilibrium contemplated during 1945 negotiations was equilibrium at a satisfactory level including exports at 175 per cent of pre-war by volume, and British imports at corresponding high levels based on full employment. It may be necessary to postpone the attainment of this sort of equilibrium but British hope that it will not have to be entirely abandoned. Eady pointed out that it will be necessary to feed the people better since they cannot be expected to reach the high level of productivity required for Britain’s needs on the basis of 1946 level of consumption, 70 per cent of pre-war.