The war, which broke out in September 1939, like the First World War, raised a host of supply problems, which could not be resolved satisfactorily by market forces alone. Once more, Govnerment had to take steps to control the economy and limits had to be placed on personal liberty. From May 1940 the country was governed by coalition of Conservatives, Labour and Liberals under Churchill, and Labour ministers played a prominent part. Since many controls were continued after the war ended in 1945, the war and immediate postwar years can be seen as a single period from the point of view of economic policy.

The United Kingdom defaulted on its war debts to the United States in the post-1931 crisis, and Congress had passed the Johnson Act in 1934, which forbade new loans to government in default. As a result, Britain's gold and dollar reserves were at first controlled carefully in the hope of making them last for the three-year war which Anglo-French war planners envisaged.

Whichever party had won the 1945 election would have faced tremendous external constrains on its policies. Britain's overseas liabilities (excluding Lend-Lease) had increased from $542 million in June 1939 to $3354 milli

Instead of allowing the pound to float, as in 1931, the Government devalued from $4.03 to $2.80, a rate that was believed to preclude any danger of a second devaluation. The rate was indeed held for 18 years and, assisted by devaluation by other countries, went far towards balancing trade between the dollar and non-dollar world. Devaluation did, however, involve a real cost, since more exports were required to pay for a given level of imports and, since the economy was at full employment, this meant a cut in domestic consumption. (Cairncross 1985, ch. 7)

In the winter of 1948-49, however, economists in Whitehall suggested that the time was approaching when sterling should be devalued so as to increase the price incentive to export to dollar markets. Labour ministers, who had little regard for the price mechanism, ignored this advice. What forced their hand was a recession in the United States, which reduced export earnings of dollars, causing a drain on the reserves, and thereby increasing speculative pressure on sterling.

"Thatcherism" may mean different things to different people, but essentially it embodies related values, attitudes and beliefs, which favor the free market rather than the state as the preferred means of allocating resources. "Thatcherism" looks to a sense of responsibility and a spirit of enterprise on the part of individuals, rather that to state-directed collectivism, as the best means of making Britain more competitive in relation to other industrial countries. It will be many years before the success or otherwise, of policies since 1979 can be judged in historical perspective since these policies are intended to have their full effect only in the long tem.

Clarke, R., Anglo-American Economic Collaboration in War and Peace, Oxford University Press, 1982.

Strange, S., Sterling and British Policy, Oxford University Press, 1971.

The major changes in Britain's economic fortunes and in the priorities of economic policy were partly a result of changing world conditions. Just as Britain had benefited from an expanding international economy and stable world prices between 1951 and 1973, so after 1973 it suffered from the effects of world recessions and inflation.

The most obvious change in the international economy was the rise in the price of oil. Increases were being engineered by the Organization of Petroleum Exporting Countries (OPEC) at the end of 1973 and again in 1979. In 1974 the price of petroleum was four times what it had been in 1972. Oil had been the source of about half of the energy consumption in Western countries in 1973, so those sudden and massive changes in price had major effects on patterns of domestic consumer demand, while capital stock, which depended on cheap energy was rendered obsolete. Investment plans were delayed until adjustments to new conditions could be made, and further caution was induced by uncertainty about the future.

This leadership role provides a potential source of "catch-up" for the other economies- and the table shows how Germany, France, and most spectacularly Japan, have experienced sufficient economic expansion to close the gap on the US. In the UK too the gap has closed somewhat since 1950, but most of the improvement seems to have occurred in the period between 1950 and 1960: indeed, relative to the US, the UK is no better off today than it was in 1960, with little exploitation of catch-up potential.

Firstly, the inefficiency of much of its industry compared with its rivals meant that Britain suffered disproportionately from the intensification of competition for trade in the post-1973 and post-1979 recessions.

Country Commercial Guide: UK. Fiscal Year 2000.

The United Kingdom (U.K) remains attractive to foreign exporters and investors both in its own right and as a gateway to the larger European Union (EU) market. With a widely used language and consistent legal framework and business practices, and relatively low infl

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