OUTLOOK UNCERTAIN
THE New Year brings a dubious economic prospect. We must therefore be thankful that we have at the Treasury a Chancellor of the Exchequer who not only knows his job, but has the courage to take swift protective ac- tion. His decision this week to cut the purchase tax on television and radio sets, gramophones and records, perfumery and cosmetics from 45 per cent. to 25 per cent.—to match the similar cut on motor-cars in November—is welcome. Mr. Maudling is doing his best to check the rise in unemployment and bring new life to a stagnating economy. His new investment allow- ances and faster depreciation rates may have no immediate effect upon industrial investment plans—the uncertainties created by the pro- tracted negotiations at Brussels are too inhibit- ing for most company directors—but the steady increase in government spending on electricity distribution, roads, hospitals, schools and hous- ing must have their stimulating effect upon busi- ness later in the year. [he total of public investment in 1963-64 is planned to rise by about £200 million, which is no mean increase. The reflation of the economy will no doubt be carried further in the Budget if necessity still drives.
Leaving aside the crucial question of our entry into the European Common Market, the present uncertainty about exports clouds the economic future. There is no doubt that Mr. Selwyn Lloyd relied too heavily upon a continuing recovery in the export trade. He went on deflating the economy far too long, with huge Budget sur- pluses, very dear money and a tight credit squeeze, expecting an export boom, together with a substantial rise in domestic consumption, to do his reflation for him. We are paying for his mistake now with heavy unemployment and unused resources extending to 30 per cent. of capacity in the steel industry. There has been a fair recovery in exports, it is true, and we have actually held our reduced share Of the world's trade in manufactures. Indeed, we have done rather better than some of our European :com- petitors. But there has been nothing like the ex- port boom Mr. Lloyd expected. I he recovery in Commonwealth trade has been slow; indeed, in the Canadian market there has been a set- back due to the anti-import measures taken by the Canadian Government. There has been a distinct slowing down in our exports to the European Common Market, which has now lost the stimulus of its investment boom. The emerging nations of Africa have not yet or- ganised their economies or exerted their poten- tial buying power, while the underdeveloped nations in receipt of aid have practically ex- hausted their buying power over the exchanges. Most of South America is already bogged down by exchange crises. There remains the United States as the only market which could take a much higher volume of British goods in 1963; that is, if the President can sustain the current strength of their economy.
This will largely depend on whether Mr. Ken- nedy can make the tax cuts he has promised. Their passage through Congress is by no means certain and will, in fact, become doubtful if they are opposed by the influential chairman of the ,Federal Reserve system, Mr. William McChesney Martin. This staunch anti-inflationist has just been warning the American public about the need to safeguard the dollar. Any further decline in the gold reserves, he said, would bring `heavy pressure' on the monetary authorities to take 'strong deflationary action' which would be harmful to the domestic economy. This was an unpleasant New Year threat to British ex- porters—indeed, to the whole Western world— as well as to the American business people. Let us hope that such madness will not be let loose upon us. If it can be avoided, then the American economy can avoid a recession in the coming year and maintain its slow upward growth. But even Professor Samuelson of the Massachusetts Institute of Technology cannot forecast any- thing like a boom. Indeed, he thinks that, in spite of a modest further expansion in the national output. the American unemployment rate will rise to 6 per cent. and that the gap between their potential and actual economic performance will widen rather than narrow in 1963. With this uncertainty about exports, Mr. Maudling is very wise to give a mild boost to domestic consumption in our own economy. He may be taking a slight risk over the balance of payments, which ran into a small deficit in the third quarter of the year, but it is a legitimate risk to take in the interests of fuller employment.
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