The Width of the Gap
In the last quarter of 1949 the net gold and dollar deficit of the sterling area narrowed right down to $31,000,000. Indeed, taking into account Marshall aid and drawings on the Canadian credit and the International Monetary Fund, the gold and dollar reserves of the area actually rose by $263,000,000 in three months. After the alarms of the second quarter, when the working deficit was $632,000,000, and the excursions of the third quarter, which ended with devaluation and a deficit of $539,000,000, this was a vast relief. But before any caps are thrown in the air it must be remembered that many export orders had been held up in anticipation of devalua- tion, that devaluation itself encouraged potential but hesitant buyers of British goods, and that both these factors are temporary. In fact, if the sterling area did not close the gap in the last quarter of 1949, that would have been the end of hope. It came just close enough to closing it to enable hope to survive. The Sixth Report on Operations under the Economic Co-operation Agreement, in which the figures on the dollar gap appear, also referred to the other indicators by which progress may be measured, the most important of which was the Index of Industrial Production, which rose from 129 in November, 1948, to 139 in November, 1949. Here again there is hope. But it will not turn into confidence until the rise in prices is checked and the danger of inflation removed. Next month's Budget can make all the difference here, if it contains some solid reductions in Government expenditure. But who can have any confidence in that, after this week's . supplementary estimates ?
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