ABSTRACT
We come next to the balance of payments crisis in the winter of 1951–2, when the Economic Section played a critical role. Soaring import prices associated with world rearmament had turned the terms of trade steeply against the United Kingdom, while the primary producing countries in the rest of the sterling area were spending heavily out of their extra earnings in 1950–1 on higher imports from dollar countries. The reserves, which had increased in the wake of devaluation, reached a peak in the first half of 1951 and then fell in the second half of the year by $1,500 million with a prospective further loss of $700 million in the first quarter of 1952. This would leave a balance of only $1,500 million in the reserves – a figure that might well produce an exchange crisis when made public. The government took steps to cut imports in November 1951; again in January, after a Commonwealth Finance Ministers meeting in London at which other sterling area countries agreed to take parallel action; and yet again in March when the reserves were still draining away.
