In 1967, Britain suffered a balance of payments crisis, spending (importing) more than it was earning (exporting). That made it crucial to keep the pound strong. The hitch was that supporting the pound was fast becoming unaffordable. The Bank of England burned through £200m in gold and foreign currency reserves in just one day alone.
And so in November, sterling was devalued by 14.3% against the dollar.
It was a personal defeat for Prime Minister Harold Wilson. But on 19 November, he went on radio and television to reassure consumers that devaluation “does not mean, of course, that the pound here in Britain, in your pocket or purse, or in your bank, has been devalued”. It didn’t take an economist, however, to tell you that that was nonsense.
“That broadcast will long be remembered for that sentence”, crowed Conservative MP and future prime minister Ted Heath in Parliament. “It will be remembered as the most dishonest statement ever made.”
Wilson had fibbed. The ‘pound in your pocket’ is, of course, the same pound that is used to import food and other things from abroad. Prices were going to have to rise.
But while it was hoped that British farming and manufacturing would get a boost, not everything could be made or grown here. “Devaluation means moving resources from consumption to the balance of payments”, wrote The Times. “It means an initial reduction in this country’s living standards.”
So, who was to blame for Britain’s distress? “Candidates abound”, said The Times’ economic editor, Peter Jay. “Was it the fault of the gnomes, the moaning minnies, the ‘selling Britain short brigade’? Or was it the wild-cat strikers, the tightly knit groups of politically motivated wreckers?”
Perhaps the culprits were to be found abroad – the Middle East crisis had undermined confidence in Britain, after all. Or could it be the French?
Whatever the real reason, Wilson faced stiff opposition to his decision to devalue the pound – all in spite of his protestations that it would tackle “the root” causes of Britain’s economic woes.
Also on this day
Twenty years ago today, 22 million people watched in hopeful anticipation as the National Lottery made its first draw. Read more here.