The Balance of Payments and Economic Policy in Britain

Abstract

The history of Britain from the war up to the mid-1970s is punctuated by balance-of-payments crises. Throughout that period external balance was a major preoccupation of policy makers, who were often obliged to give it priority over their objectives for internal balance. Then, from the mid-1970s until the late 1980s, there was a period of respite when the current account was in large surplus. In these years the value of North Sea Oil production rose substantially, and at the same time the level of output and employment was kept low to combat inflation. The position changed rapidly at the end of the 1980s, with domestic demand racing ahead and world oil prices falling, and the current account went into very large deficit.

We are grateful for helpful comments from Ray Barrell, Nigel Pain and Peter Westaway. The research report in this chapter was supported by the ESRC Macroeconomic Modelling Consortium.