Britain Faced with Further Import Cuts As Dollar Gap Widens

Otago Daily Times, Issue 26793, 9 June 1948, Page 5

Britain Faced with Further Import Cuts As Dollar Gap Widens

From E. G. Webber, N.Z.P.A. Special Correspondent Rec. 10 p.m. LONDON, June 8. Although it is known that the measures formulated at last year’s commonwealth dollar talks have considerably checked the drain upon the sterling area’s dwindling gold and dollar reserves, Britain’s general balance of payments situation, which is very closely bound up with the fortunes of the sterling area as a whole, is still by no means satisfactory. This impression is confirmed by the announcement to-day that Government departments have been asked to prune Britain’s import programme still further.

This is due to several factors—a probability that Marshall aid will be reduced, the continuing rise in import prices, the necessity for setting a safety limit for the gold reserve, and the unexpectedly large adverse trade balance which has developed with countries like the Argentine outside both the dollar and sterling areas. This adverse balance is at present running at the rate of £27,000,000 for the first six months of this year. This has upset the calculations of the Treasury which estimated that trade with non-dollar and non-sterling areas should show a favourable balance of £33,000,000 in the first half of 1948. Instead, it appears that this has been transformed into an adverse balance of £27.000.000 in four months. According to the Financial Times, the terms of trade with the dollar area are reasonably satisfactory always remembering that it was never expected that the full dollar gap could be bridged this year, and always providing that Britain receives Marshall aid to the full extent originally promised. But if this is reduced,, as now seems probable, there must be compensating cuts in imports from the hard currency countries. These will not be due to erroneous calculations on Britain’s part for the figures released by Sir Stafford Cripps last week indicate that the dollar gap this year will be almost exactly the figure estimated in the second economic survey, that is to say about £320,000.000. At best, however, only a narrow margin exists, and the uncertainty caused by knowledge of this has been aggravated by the latest moves of the American House of Representatives Appropriations Committee, rising import costs, and the certainty that British gold reserves will shortly be reduced to below £500,000.000, if indeed they have not fallen below it already.

Another important influence upon the situation is that Britain is only now beginning to feel the full effect of the increased prices granted to the Argentine in last year’s trade agreement, that the price of wheat under the trade agreement with Canada will shortly rise by 48 cents a bushel, and that Denmark, New Zealand and Eire, which are all due to reopen new food contract negotiations with the United Kingdom, are all asking for substantial increases in prices and probably specified deliveries of certain types of equipment ' The policy of the British Government, it is reported, will be to cut imports of non-essential foodstuffs and tobacco first, and to preserve as lqng as possible the present volume of imports of machinery and raw materials. It is considered probable that imports of Canadian bacon, cheese and eggs, which Britain was compelled to accept in order to obtain wheat, will be among the first to be reduced. Other cuts will probably be applied to various types of foodstuffs which are being used to vary the British diet, but which rare not considered essential. Canadian food supplies present a particularly urgent problem, as Britain is at present paying for these in American dollars, in the hope that she will eventually be reimbursed through Marshall aid. If Marshall aid is reduced, this will no longer be possible.