Friday, Mar. 06, 1964
Living It Up
The British like to insist that, more than most nations, they must trade in order to live. Lately they have been trading as never before; their exports rose to a record $11.4 billion in 1963. But Britons have also been living it up as never before. With more money to spare than ever, British consumers are indulging their taste for foreign luxury goods, and British businessmen are importing huge amounts of raw material to keep their expanding factories busy. After months of nervously watching the spectacle, Prime Minister Sir Alec Douglas-Home and his financial agents were alarmed when January's figures showed that Britain's trade gap had widened to the largest ($460 million) in history. Last week the government took action to dampen Britain's spending spree by raising interest rates from 4% to 5%.
By making money dearer, the government hopes 1) to discourage British businessmen from expanding too rapidly and importing too much, and 2) to force them to resist new wage increases demanded by the unions, thus helping to bring exports into line with imports. Higher interest may be the answer for Britain's current ills, but it is bad news for the U.S. Though the U.S. gold outflow has been wrestled under control in the past five months, Treasury Secretary Douglas Dillon recently urged European countries not to raise their interest rates this year, to avoid attracting dollars from the U.S. With the British bank rate now 1 1/2% above the U.S. rate, many investors will be tempted to place their money in Britain.
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