From Crisis to Convalescence

The British pound, which has been ailing for decades, has begun to show signs of returning health. And its new strength is reflected in reports both at home and abroad. Last week the Federal Reserve Bank of New York announced that the British have entirely repaid more than $625 million borrowed from the U.S. last summer in order to help sterling escape devaluation. In a long-distance diagnosis, the Reserve Bank's Charles A. Coombs, vice president in charge of foreign operations, said that the pound has "moved through crisis to convalescence."

In his semi-annual report on U.S. foreign-currency operations, Coombs explained that the largest factor in sterling's recovery has been "the underlying improvement" in Britain's pound-threatening balance-of-payments deficit. Though the British ran a deficit for the whole of 1966 (probably between $420 million and $560 million), rising exports produced a balance-of-payments surplus during the final three months of the year. This year, says a forecast from London's National Institute for Economic and Social Research, Britain should show an impressive $490 million surplus, its first since 1962.

Despite these signs, Britain's economy is still floundering. Labor unions and employers are wrangling with the government over its reluctance to end loophole-loaded controls on wages and prices. Unemployment reached 602,844 last month, leaving 2.6% of the labor force jobless against a 2% level that Prime Minister Harold Wilson once called "acceptable." Rising food prices have helped pull the cost of living to a new peak. Worst, industrial productivity has failed to improve, and though help might have come from private investment, instead such investments have slumped. Soaring government spending for defense, welfare, roads, schools, housing and nationalized industries has raised the specter of higher taxes next month, a move that some economists fear would only deepen the recession.

Still, defense of the pound, which finances a third of the world's trade, is the first order of business. And last week Chancellor of the Exchequer James Callaghan told Parliament that by Dec. 2, Britain will repay on schedule the remaining $871 million of a $1 billion sterling-defense loan from the International Monetary Fund.

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