1945–51: Labour’s Macro-Economic Policies

After the Second World War, the British economy experienced both shortages of goods and heavy pent-up post-war demand. These conditions persisted for many years, because non-military production was slow to recover and Britain had too few external assets to enable the excess demand to be rapidly relieved by imports, which were heavily controlled. Thus the main task of macro-economic policy was to restrain demand sufficiently to keep it roughly in balance with productive capacity. Rationing was extensive and prolonged: rationing of food continued until 1954, and of coal until 1958. In addition, it was considered desirable to have a current account balance of payments surplus to finance repayment of the country’s massive external debts and build up its international reserves. In the words of the Radcliffe report (1959, paragraph 400): At the end of the war the need for massive reconstruction — of the country’s public utilities, its living accommodation, and its productive equipment — was the overriding aim of economic policy, and this led to deliberate rejection of monetary restraints and to reliance upon direct controls and fiscal measures. Alike as a selector of the most urgent capital works and as a deterrent of expenditure, the rate of interest was thought an unsuitable weapon.