§ The year 1949 was certainly not a dull year from the economic point of view. It was marked, indeed, by that summer crisis, which generally seems to occur somewhere in the world over something, but which this time was in a form that particularly affected the relation between the sterling and the dollar areas and 41 which led to the drastic decision to devalue sterling. The first quarter of 1949 showed the general recovery in our external finances as continuing. Let me here warn the Committee that there is a seasonal tendency for the first quarter)l the year to appear somewhat overpromising. We achieved a small surplus in our overseas payments, and our reserves of gold and dollars actually showed a small increase.
§ What happened after that first quarter up till devaluation is well known to the Committee, and was fully debated in the House at the time of devaluation. A decline in the dollar receipts of the sterling area and an increase in its outgoings led to a heavy draft upon our depleted reserves, and this, in turn, intensified the development of those speculative movements which had already been engendered by the most damaging gossip that had been rife as to the possible devaluation of sterling.
§ We had, of course, before we decided to devalue weighed very carefully the likely effects upon our economy of that devaluation, and now, after six months' experience, we can say that, so far as we can at present judge, events have moved rather more favourably for us than we then anticipated. This is due to a complex of causes including, I believe, the inherent soundness of our own economy and the fact that the world is convinced that we are prepared to take the most drastic steps to guard the strength of sterling and its use as a basis for a wide area of multilateral trade throughout the world.
§ Since September last our exports have recovered sharply, and preliminary information indicates that the volume in the first quarter of this year was nearly 10 per cent. above that of the first quarter of last year. We are at the moment in overall balance-indeed, almost certainly in overall surplus-with the rest of the world, and, as was clear from the figures I gave the House a few days ago, we have made a satisfactory beginning to the recovery of our gold and dollar reserves.
§ When we look forward to the rest of 1950 it is difficult and hazardous to make any forecast. We do not yet know what will happen as regards Marshall Aid for 1950–51, and we have not yet seen the end of the changes brought about by devaluation. The evidence of the first quarter of 42 the year, however, tends to show that our exports are expanding in a satisfactory way and that our export prices are still fully competitive over a wide range of goods. But we must remember that both Germany and Japan are coming back into the international markets and that, even apart from that fact, competition is likely to intensify in the coming months. This should bring home to us the very great importance of doing all we can nationally and internationally to maintain the expansion of world markets, for any general contraction is bound to have a particularly adverse effect upon our world-wide trade.
§ We have estimated that our receipts from visible exports may reach £2.000 million for the year 1950, some £200 million more than in 1949. On the invisible items of the balance of payments we expect a distinct improvement, in particular with respect to oil, shipping and tourist earnings.
§ So far as imports are concerned, we have, of course, suffered a serious worsening of the terms of trade since devaluation; if we denote those terms of trade in 1947 by the index number 100, then between September, 1949, and the present time they have moved against us from 98 to 108. We hope that we have now seen the full extent of the rise in import prices, but prediction is most difficult in this field as it depends on so many factors over which we can have no control at all. The most important is, of course, the level of business activity in the United States, but we are also affected by the level at which farm prices are there maintained. We expect, however, despite the difficulties to be in a position to obtain the necessary raw materials for our expanded production.
§ So far as food supplies are concerned, 1949 showed a marked improvement over earlier years and, on the whole, we were able to keep down import prices. There are far fewer shortages in the shops today, and the volume of the ration has now risen in a number of commodities. The outlook is not unfavourable, despite our difficult negotiations with the Argentine.
§ Taking the picture of our external economic position as a whole, we hope during 1950 to convert an overall deficit of about £70 million into an overall surplus of about £50 million. I would here stress to the Committee the importance 43 of our being in a position to earn an overall surplus. Marshall Aid, which has been and is such an immense help to us, is declining and will disappear at latest in 1952; our Canadian credits will also be exhausted in the near future. Not only so, but from 1951 the question of the service of the American and Canadian debts will confront us. We must also have available some surplus to assist in Commonwealth and in colonial development. Over and above all this it is essential for us—as I shall show in a moment—to increase our gold reserves.