Trouble for the Pound

The British must trade to eat, and there was general rejoicing last year when Britain sold enough goods to increase its share of worldwide exports for the first time since the late 1940s. Economists rushed to predict that this year would be even better. But 1963 proved to be a fluke, and 1964 has been anything but good for British trade. Last week the government announced that Britain's trade balance showed a discouraging deficit of $143 million in August--bringing to $930 million the deficit for the first eight months of the year. Because so much British money is going into foreign coffers, the British pound, one of the free world's two reserve currencies, is sagging perilously.

Some Cushioning. Last week the pound had dropped from its parity of $2.80 to as low as $2.78 5/16, the lowest in seven years and uncomfortably close to its official floor of $2.78, at which the Bank of England is legally obliged to intervene and support the rate by purchasing pounds. Britain's gold and hard currency reserves are at their lowest level since the sterling crisis of 1957, and the respected National Institute of Economic and Social Research has flatly predicted that Britain will show a balance-of-payments deficit for 1964 of $1.4 billion. Whichever party wins next month's elections, Britain will almost certainly have to draw funds from the International Monetary Fund before year's end.

Despite such troubles, no run on the pound has developed. For one thing, Britain's trade gap has been partly cushioned by a buildup of sterling balances held in London by other sterling area countries. For another, the Bank of England, which has let the sterling rate sag without much intervention, has resources at its call that are formidable enough to discourage currency speculators: $2.5 billion of Britain's own reserves, several hundred million dollars available from Continental banks, a $500 million swap arrangement with the U.S. and $1 billion in stand-by credits from the IMF. Besides, no government is likely to prescribe medicine as stiff as devaluation, the move on which the speculator gambles.

Reluctant to Bother. The cure for the quivering pound is as plain as its cause: trade. Manufacturers claim that rising costs and shortages of skilled labor are hampering exports, but that is not the whole story. Ted Heath, President of the Board of Trade, called last week for "more aggressive salesmanship overseas, based on new manufacturing techniques and keenly competitive costs." The trouble is that when business is good at home, many small firms do not want to bother with exports. British officials, noting that Britain's share of the giant U.S. market has slipped this year, tried to persuade businessmen to take part in 15 trade shows across the U.S. The response was apathetic.

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