BOOM IN BRITAIN HEALTHY CONDITION OF NATION’S ECONOMY

Press, Volume XC, Issue 27442, 31 August 1954, Page 10

BOOM IN BRITAIN HEALTHY CONDITION OF NATION’S ECONOMY

(By

“LYNCEUS”

“ of the “Economist”]

[From the “Economist” Intelligence Unit}

London, August 17.—For some months now «he people of Britain have been happily caught in a boom. There is no intention of giving the word a gloomy meaning. A boom need not be unhealthy or inflationary. What Britain has enjoyed in recent months deserves neither adjective. That it is hot inflationary should be evident in the recent behaviour of prices and of the cost of living. These have been comparatively stable over the last year. The non-inflationary character of the boom is also apparent in the continued surplus at which the British balance of payments appears to be running. Admittedly, there is an abundance of purchasing power and the monetary circulation has been rising to record levels. But, although retail trade had been enjoying a high level of prosperity, the amounts of goods and services that are pouring into domestic consumption are not being withdrawn from an inadequate supply going *to export markets. In contrast with what has happened on earlier occasions in post-war years, the seeming prosperity at home is not going hand-in-hand with a deficit in the balance of payments. We are not enjoying our boom thanks to the gifts Or credits extended to us by other countries. Nor does this appear to be a spendthrift boom. Personal savings continue high, although an increasing proportion of those savings is now made through pension funds, insurance companies and other institutions which do not always look for risk capital as the best means to invest the resources put at their disposal. That fact may create problems of its own; but disregarding this particular issue of. mobilising adequate risk capital, it can be said that savings are now ruhning at a higher rate than at any time in the post-war period and that the volume of consumption in this country is not due to the people not saving or to their consuming resources that should be applied to the maintenance of old and the building of new capital. A Strlklnc Symptom One of the most striking symptoms of the boom climate in which Britain is now living, is the behaviour of the Stock Exchange, where, for months past, most classes of equities have been forging ahead to new high record levels. Though this activity is admittedly fed by speculation, it must not for that reason be written off as unhealthy. A very strict control is exercised on the amout of credit that can be used to underpin Stock Exchange operations. The Capital Issues Committee, under which banks conduct their operations, still frowns on bank credit being used for this purpose. Although carry-over facilities are again available in the Stock Exchange, they are strictly limited by the amount of bank credit made available for this purpose. The rise in Stock Exchange values, which has made such impressive progress during the current year, must on closer analysis be regarded as little more than a deferred and delayed adjustment of prices to the fall in the value of money. The “Financial Times’’ index number of ordinary industrial shares, which is based on prices in 1935, has recently risen to around 167. Few other indices measuring changes in prices since before the war provide a rise so modest as this figure of little more than. 60 per cent. During the post-war years this adjustment was held down and delayed by dividend limitation, excess profits taxes and decisions of the Capital Issues Committee, which prevented the adjustment of capital structures to the genuine increase of capital employed in business. These restraints have little by little disappeared; and it is hardly a caus4 for surprise that a by-product of this move towards should be a corres-

i ponding adjustment of share values to . the realities of 1954. This is no echo ’ of 1929, as may be seen from the ! generous yields which most industrial i shares still give at current prices. In ■ 1929 gamblers in Wall street were ; happily paying 20 per cent, for bank ; loans, with which they bought stocks ; that yielded them less than 1 per cent l That crazy situation bore all the marks ■ of impermanence. No such situation l exists today, whether in Wall street t or Throgmorton street. Hire Purchase ! Those who suggest that the present 1 boom in Great Britain is unhealthy ' • have recently been able to advance the 1 view that much of the stimulus to I consumption is being provided by the • recent relaxation in hire purchase » terms. No doubt these relaxations have i had a very powerful impact on the f trade in television and wireless sets, I household goods, furniture, motor cars t and other articles, the sales of which ' J tend to depend to some extent on dei ferred payment and other credit i facilities. restrictions had been - imposed in 1951 at a time when t Britain was in serious balance-of-i payments difficulties; and steps had to t be taken to curtail domestic con* 5 sumption so as to liberate resources ■ for expanding exports. At that time ' minimum down payments were im- • posed, together with maximum periods ■ over which the balance of any hire 5 purchase contract had to be paid fat’4 r In the last few months, however, these ! restrictions had been increasingly s evaded and in July the Government ’ c had to admit the accomplished fact t and removed them from the Statute . Book. • ; It was announced at the time that ' the banks were instructed not to inr crease the total credit facilities : 5 available for this consumer credit ' i That might have been the intention, ; I but through one means of another the • i wherewithal to underpin a gteatly enj larged volume of hire purchase credit - has undoubtedly been available. j Although no comprehensive statistjei', ■ { are available, it can be asserted that' in relation to national income the ‘ total of consumer credit outstanding' * . in Britain is relatively much lower . than in the United States and Canada f and that so far it represents no threat - . to the stability of the economic poai- * ’ tion. • w i High Production Level . ’ That position is dominated by two 8 t basic facts. The first is the continuing 5 increase in industrial production in - s the United Kingdom. That produetinn '••• t is now running at between 6 and 7 ’ ner cent, in excess of last year’s level, r' I The national income is rising in » corresponding terms; and it cannot be--5 suggested that domestic consumption 5 is outrunning the resources justifiably 5 available for it. The second fact, -MfakmO ■ is closely connected with the first, ii £ J the continued and improving solvency' < t of the balance of payments. This can-w be seen reflected in the monthly over- 3 , seas trade figures, in the monthly • accretion of the gold and dollar, re- ~ t serve and in the continued strength; J? s of sterling in the foreign excha&e I market. i It is indeed remarkable how these ; I two factors' in the situation—- • tion and the balance of payment—i have so successfully withstood the'test > year’s reduction in the level of i economic' activity in the' United Stated ■ • To enumerate these factors of strength t is not to plead for a policy of atty I further relaxations or to contend tftirt f J all is for the best in the best of all I possible worlds. The position callg for 5 constant vigilance and endeavour—j vigilance against any renewal of ta- - fiation and endeavour to improve jttH. I further the productivity of British in- . f dustry. But it can justifiably ( be » claimed for .954 to date that it Me ■ shown the British economy at its best •; r and more resilient since it was called ! upon to reconvert itself from a war - to a peace-time basis.