§ I will begin with the balance of payments. By all the rules, the year 1955 should have been a good year. The outflow of dollars from the United States continued at a high level. Output was growing rapidly in all major manufacturing countries and trade between them was increasing at an exceptional rate. The primary producing countries, in general, remained prosperous and provided good markets for manufactured goods—America sending out more dollars than she received: world trade increasing: markets good. Everything, therefore, seemed in our favour.
§ Yet, as the Committee knows, in spite of the favourable external circumstances, the balance of payments figures were disappointing. The United Kingdom current account balance with all areas over the calendar year was in deficit to the extent of £103 million. That is £308 million down on 1954. This deterioration was equally divided between visible and invisible trade. It is true that much of the fall in the invisible surplus was due to exceptional circumstances, such as a sudden expansion of oil companies' expenditure. All the same, the position as a whole is disappointing and unsatisfactory.
§ Now I come to the balance of the sterling area as a whole with the non-sterling world. This fell from a surplus of £97 million in 1954 to a deficit of £181 million in 1955, Of this deterioration of £278 million, no less than £251 million was due to the United Kingdom.
§ The result of these unfavourable balances is, naturally, reflected in the reserves. Ultimately, of course, it is 854 the sterling area's trading account that matters. If that is good, there is no reason to worry too much about reserves or the cash account, for, in the long run, if the trade balance is right, the cash account will be right, also. But if the trade account is bad, the cash account will suffer. So it has proved. Of course, the reserves are affected by many other considerations. But what I have said is broadly true.
§ During 1955, we lost £229 million from the central gold and dollar reserves, which, at the end of the year, stood at £757 million. This was a loss of nearly a quarter. Over the turn of the year—that is, this year—the reserves began to show improvement. In January, they increased by £11 million and in February by £21 million. The March figure showed an increase of £24 million. That is all right as far as it goes, but we have—and we might as well face it—a long way to go.
§ The truth is that our reserves, which now stand at £813 million, are really insufficient for their purpose. They represent, in fact, only about 8 per cent. of the annual turnover of sterling area trade with the non-sterling world. In this sense, whether at the figure of last year or the figure of this year, we are really trading beyond our capital resources. We lack just that extra amount of strength which would allow us to take the swings in our balance of payments with comfort. We must, therefore, increase the reserves. To do this, we must correct the balance of payments. If we can do this, the rest will follow.
§ Our position in the European Payments Union has been even more markedly affected than our gold and dollar reserves. Our E.P.U. deficit, which was over £90 million in the third quarter of 1955 and nearly £30 million in the fourth quarter, was, in January, only about £4 million and, in February, about £8 million. In March, which, of course, should be a good month, it fell to only about £100,000, so that is an advance. With the wide transferability of sterling, of course, it is not only the normal current transactions with Europe of the United Kingdom and the rest of the sterling area which affect the monthly E.P.U. settlement, but also transactions with a large part of the rest of the world.
855§ As regards the balance of trade, January was not a good month. The excess of imports over total exports was £74 million, compared with a monthly average of £62 million in the last quarter of 1955. It was only slightly better than the figures for the earlier quarters of 1955. In February, the excess was reduced to just under £50 million, but February is normally a low month for imports. In March, the deficit was again reduced to £47 million. This is encouraging, although it is too early yet to say that a better trend is firmly established.