{{Short description|1967 sterling crisis}} On 18 November 1967, the British government [[devaluation|devalued]] [[pound sterling|sterling]] from [[United States dollar|US$]]2.80 to $2.40 per pound (correspondingly changing its [[gold]] parity for £1 from 2.48828 g to 2.13281 g). It ended a long [[currency crisis|sterling crisis]] that had started in 1964 with the election of [[Labour Party (UK)|Labour]] in the [[1964 United Kingdom general election|1964 general election]],<ref name="Bardo">{{Cite journal |last1=Bordo |first1=Michael |last2=MacDonald |first2=Ronald |last3=Oliver |first3=Michael |date=2009 |title=Sterling in crisis: 1964-1967 |journal=European Economic History Review |location=Cambridge, MA|doi=10.3386/w14657 |doi-access=free }}</ref> but originated in the [[balance of payments]] crises of the preceding Conservative government.<ref name="Bardo" />
== Historical background == {{more|Harold Macmillan#Economy (1959–1963)|Harold Wilson#Economic policies|James Callaghan#Chancellor of the Exchequer, 1964–1967}} As soon as [[Harold Wilson]]'s newly elected Labour government took power after winning the [[1964 United Kingdom general election|1964 general election]], vowing to end the Conservatives' "stop-go" economic policies,<ref name="Bardo" /> sterling came under pressure because the market feared that Labour would devalue the currency so as to be able to implement a looser monetary policy, favouring growth.<ref name="Cairncross">{{Cite book |last1=Cairncross |first1=Alec |url=https://link.springer.com/book/10.1057/9780230596306 |title=Sterling in Decline, The Devaluations of 1931, 1949 and 1967 |last2=Eichengreen |first2=Barry |publisher=Springer |year=2003 |isbn=978-0-230-59630-6 |edition=2nd |language=en |doi=10.1057/9780230596306}}</ref> Upon coming to power, the government was informed that they had inherited an exceptionally large deficit of £800 million{{efn|about £{{inflation|UK-GDP|0.8|1967|2019}} billion at 2019 prices, using GDP index}} on Britain's external [[balance of trade]], partly caused by the preceding (Conservative) government's expansive fiscal policy in the run-up to the 1964 election. Wilson wrote in his autobiography that the life of his government was "dominated by an inherited balance of payments problem which was nearing a crisis at the moment we took office".<ref>{{Cite book |last=Harold |first=Wilson |title=The labour government, 1964-70 : a personal record |date=1974 |publisher=Penguin Books |isbn=0-14-021762-2 |oclc=1321981339}}</ref> Immediately on announcing the trade figures, the pound came under increased pressure.<ref name="Bardo" /> Many economists advocated [[devaluation]] of the pound in response, but Wilson resisted, reportedly in part out of concern that Labour, which had previously [[1949 sterling devaluation|devalued sterling in 1949]], would become tagged as "the party of devaluation".<ref name="Cairncross" /> Wilson also believed that a devaluation would disproportionately harm low-income Britons with savings and poorer [[Commonwealth of Nations]] countries in the [[sterling area]]. The government instead opted to deal with the problem by imposing a temporary surcharge on imports, and a series of deflationary measures designed to reduce demand and therefore the inflow of imports.<ref>{{Cite book |last=Thorpe |first=Andrew |url=http://link.springer.com/10.1007/978-1-349-25305-0 |title=A History of the British Labour Party |date=1997 |publisher=Macmillan Education UK |isbn=978-0-333-56081-5 |location=London |doi=10.1007/978-1-349-25305-0 | pages=125–145}}</ref> In the latter half of 1967, an attempt was made to prevent the recession in activity from going too far, in the form of a stimulus to consumer durable spending through an easing of credit, which in turn prevented a rise in unemployment.<ref name="inequality">{{cite book |last=Townsend |first=Peter |editor-last=Bosanquet |editor-first=Nicholas |publisher=[[Fabian Society]] |title=Labour and inequality: Sixteen Fabian Essays |isbn=978-0-7163-4004-1|year=1972 }}</ref>
International aid is mostly what had helped maintain the $2.80 value of sterling between 1964 and 1967, thanks to "lines of credit from central banks and the [[International Monetary Fund|IMF]] and [...] a swap network with the Federal Reserve Bank of New York".<ref name="Bardo" /> These enabled the Bank of England to intervene on the foreign exchange market. Nevertheless, in the absence of improvements to the fundamental economic situation of the United Kingdom, delaying the devaluation only served to reduce the Bank of England's dollar reserves.<ref name="Schenk">{{Cite book |last=Schenk |first=Catherine R. |title=The decline of sterling : managing the retreat of an international currency, 1945-1992 |date=2013 |publisher=Cambridge Univ. Press |isbn=978-0-521-87697-1 |pages=155 |oclc=934197928}}</ref>
== Consequences == According to [[Catherine Schenk]], the 1967 devaluation became "emblematic of the inability of the Labour Party to cope effectively with the reduction of sterling's international role".<ref name="Schenk" /> After the devaluation, the [[International Monetary Fund|IMF]] sent a mission to London and on 29 November 1967 offered a £1.4 billion loan to the UK.<ref>{{Cite book |last=Duncan |first=Needham |title=UK monetary policy from devaluation to Thatcher, 1967-82 |date=2014 |publisher=Palgrave Macmillan |isbn=978-1-137-36954-3 |oclc=964759941}}</ref>{{efn|about £{{inflation|UK-GDP|1.4|1967|2019}} billion at 2019 prices, using GDP index}}
While the 1949 devaluation helped the British economy, the 1967 version did not improve the United Kingdom's economic position.<ref>{{Cite book |last=Forrest |first=Capie |title=The Bank of England : 1950s to 1979 |date=2012 |publisher=Cambridge University Press |isbn=978-1-107-62169-5 |pages=372 |oclc=816047261}}</ref> The devaluation also failed to improve the Bank of England's reserve position. To appear stronger than it was towards the markets after the devaluation, the Bank of England started manipulating or "window dressing" its reserve figures.<ref>{{Cite journal |last=Naef |first=Alain |title=Dirty float or clean intervention? The Bank of England in the foreign exchange market |url=https://doi.org/10.1093/ereh/heaa011 |journal=European Economic History Review |year=2021 |volume=25 |issue=1|pages=180–201 |doi=10.1093/ereh/heaa011 |url-access=subscription }}</ref>
==Notes== {{notelist}}
== References == {{reflist}}
==See also== * [[Sterling crisis (disambiguation)]]{{snd}} list of sterling crises
[[Category:November 1967 in the United Kingdom]] [[Category:1967 in economic history]] [[Category:Economic crises in the United Kingdom]] [[Category:History of pound sterling]] [[Category:Financial crises in the United Kingdom]] [[Category:Harold Wilson]] [[Category:History of the Labour Party (UK)]]