A QUESTION OF CONFIDENCE
THE economic consequences of Suez depend largely on 11( w skilfully the Government manages to maintain confidence in the pound. Neither the direct burden on the Exchequer nor the additional strains on the balance of payments from higher shipping costs and lower oil revenues, about which the House of Commons heard from Ministers last Monday, are as impor- tant as this issue of confidence. For that reason alone the Government was quite right not to introduce any kind of emergency measures, or, as has been suggested, an autumn Budget. That would have been a fateful mistake.
If the question of confidence can be handled successfully, and provided that the Canal is in use again early next year, the intervention in Egypt will not prove to have been a serious set- back to our economic recovery. But this task is difficult, and is made more so by the apparent irresistible urge of Opposition spokesmen and some City columnists to talk about devaluation at the drop of a hat. It is true that the world has lOoked scepti- cally at the £ since early in the summer. The seizure of the Canal, and the steady drain of gold and dollars from the reserves, which accelerated in October, have made traders and bankers the world. over behave still more cautiously in their dealings in sterling. Now that Britain faces new problems the outlook becomes even more precarious. Yet the remarkable thing is that we have avoided a runaway loss of confidence such as would force our hands. In spite of everything that has happened the position in the foreign exchange markets is still under control, due partly to skilful intervention by the Bank of England. It is important to remember that fundamentally the British economy is, as Mr. Maudling rightly said, 'sound and healthy' however hard it may be to persuade other countries that this is so. The export trade in October climbed to a new level, al d exports to the North American markets were also better than ever before. Nor is there at present any seriously weak link in the chain of overseas sterling countries, whose combined efforts determine the size of the central dollar reserves. With the possible exception of India, all sterling countries are in a much better position than for some years to contribute substantial earnings from selling commodities to America and elsewhere into the central pool. This will help to keep the reserves at least above the danger level. Whether in these circumstances the Government would be wise to ask for a waiver of the interest Payment due at the end of the year on the American loan is now a matter of debate in and out of Whitehall. Judged by the test of what it would do to confidence the balance may rest slightly against making such a request.
Once overseas opinion realises that the authorities here are keeping their nerve, and that there is no question of devalua- tion, the whole picture will transform itself. For months private traders have been 'going short' of sterling often at great in- convenience to themselves. Once they decide that the outlook is more settled they will try to get pounds in every possible way, and the reserves will be restored to something nearer their normal level.
All this, of course, assumes that a settlement for the Middle East can now be hammered out fairly quickly, and in such a way that Britain and France do not have to shoulder by them- selves responsibilities which should properly be shared by others. A prolonged involvement without whole-hearted sup- port from America would set our entire economic recovery at hazard.
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