Edging Back from the Brink

While the U.S. and continental Europe began their economic upturns, Britain continued for months to wallow in the trough of recession. In fact, other countries feared that Britain's economic woes--notably, a galloping inflation and a weakening pound--might trigger a new international economic crisis. But as the new year began, it was evident that Britain, though still lagging behind other nations, has firmly entered the recovery stage. The three major signs:

1) Inflation, which reached a ruinous annual rate of 28% in 1975, has braked to a more manageable 15% and is expected to ease to a single-digit rate by late '76. Though that rate is still higher than those of Britain's major trading partners, the trend is favorable.

2) The pound, which has fallen from its last official parity of $2.60 to a present low of $2.02, has begun to stabilize.

Fears of a run on the pound have subsided. Though investors are generally not buying sterling, they are not selling it either. As Sheik Hisham Nazer, Saudi Arabian Minister for Economic Planning, said recently of his country's large sterling balances: "The British are not worried about them, nor are we."

3) Industrial recovery, which for months was nonexistent, is finally beginning. New orders are increasing, and British G.N.P., which declined in 1975, is expected to show a sliver of growth this year. Company profits, which fell drastically last year, are starting to recover, and the London stock exchange is rebounding. The Financial Times industrial index of ordinary shares has risen by about 84% since last summer.

Though Britain's recovery has been helped by the improving international economic climate, the cure has been largely self-administered. The main feature is Prime Minister Harold Wilson's deal with trade unions to hold wage increases to a maximum of $12 per week, thus slowing the inflationary spiral. In addition to wage restraint, the Labor government is seeking to put Britain's nationalized industries, which have eaten up $18 billion in taxes and loans over the past few years, on a sounder economic footing. Instead of being run for such "social goals" as full employment and regional development, the nationalized industries, which account for 11% of Britain's $187 billion G.N.P., are now being told to earn profits, and outstanding businessmen from the private sector are being brought in to run them.

For example, the new chief of state-owned British Airways is Sir Frank Mc-Fadzean, the former chairman of the Shell Transport & Trading Co. Further, the nationalized industries are being encouraged to bring prices in line with production costs; the Electricity Board, a state utility monopoly, has been permitted a 40% rate hike. British Steel Corp.

has finally been given the Cabinet's O.K.

to slice the nationalized firm's overstaffed work force by onequarter.

In a New Year's interview, Wilson warned the British to expect "bleak months ahead." To increase the momentum of the economic recovery, the Prime Minister and the Chancellor of the Exchequer, Denis Healey, are planning a stern new policy that will try to hold average wage rises in 1976 to 7 1/2%, with the upper limit obtainable only through increases in productivity. The Cabinet has also decided to cut spending, trimming some $5 billion from projected public works.

Muddling Through. The big question: Will Wilson persevere? Only recently he reneged on his policy of not helping inefficient companies, by agreeing to a politically expedient bailout of Chrysler's inept British subsidiary (TIME, Dec.

29). As his austerity policies cause a loss of jobs, he will come under increasing pressure to ease Britain's unemployment, which now stands at a postwar high of 1.2 million, or 5.2% of the labor force.

Even now, the railroad workers, fearing layoffs, have begun to stage protest marches in London.

Judged by his record, Wilson is incapable of executing the basic restructuring that Britain's archaic economic system so drastically needs. Instead, he hopes only to muddle through for the next few years, until oil riches from under the North Sea may come to the rescue, providing Britain with a cushion of cash to handle its heavy foreign debts.

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