Slowing Down
By a Correspondent FoR the first time since the spring of 1958 Britain's hire- purchase debt fell in August. The intervening period—from April, 1958, to July, 1960— comprised Britain'S first hire- purchase boom (and possibly the largest for a long time to come). This period saw Bank rate on the way down from the September, 1957, rate of 7 per cent. to a low point of 4 per cent. last year, and back again up to 6 per cent. It saw the dismantling of the credit squeeze, the gradual abolition of hire- purchase controls, and then their partial replace- ment in April this year. This check to the growth in the HP debt is bound to be taken as additional evidence in support of their case by those who believe that a switch from contraction to expan- sion in government policy is now overdue. In these columns a fortnight ago Nicholas Daven-. port strongly urged the Government to get rid of its excessive preoccupation with the short-run balance of payments problem and instead start encouraging economic growth again.
In general terms the great dispute about economic policy in almost the whole of the period since the last war has been between those who, on the one hand, believe that the overriding object of policy should be to maintain price stability and protect the balance of payments, even by restraining economic growth if neces- sary, and those who, on the other hand, feel strongly that these considerations should be kept subservient to the long-run fundamental need to attain a fast, steady rate of economic expansion. This second group tended to feel very strongly that 7 per cent. Bank rate and the associated restrictionary measures were a great mistake: similarly, they now claim that Bank rate should be reduced—particularly since, by contrast with the spring of 1958, sterling is immeasurably stronger, and the gold and convertible currency reserves larger. There are, however, other con- trasts between the present time and two and a half years ago which make some argue (even if they believe in principle in the policy of expan- sion) that this is not the precise time, for tactical reasons, to switch to a less restrictionist policy.
Compared with the spring of 1958 it can be argued that the prospect then was for an expan- sion in world trade whereas now international commerce tends to be slowing down. Then the United States was moving from recession to re- covery, while in 1960 the American economy seems at best to be stagnant at a relatively high level of production—but one significantly below full capacity. In the first half of 1958 it looked as if world commodity prices might at last be turning up4ards whereas only last week, for example, the two groups of Rhodesian copper producers announced new cuts of 10 per cent. in the supplies to be made available to world markets to meet the problem of over- production. So far as the United Kingdom itself is concerned, two and a half years ago it looked as if exports were beginning to expand more sharply, while the latest question is whether the early 1960 level can even be maintained. In 1958 signs were still being looked for of any expansion in British industrial investment: now, however, the capital goods industries are the most buoyant in the economy and, according to the Board of Trade's latest estimates, expenditure by manufac- turing industry on investment, which seems to be 20 per cent. higher this year than in 1959, is likely to be another 20 per cent. up next year. Another aspect of this is that while early in 1958 excess capacity existed on a fair scale almost right through British industry, now over-full employment is more the rule, except for those particular trades making durable consumer goods —including motor-cars. Finally, in comparing these two periods, there was no danger in the
Nicholas Davenport is on holiday.
first half of 1958 that a policy of a progressive lowering of Bank rate would lead to any great outflow of short-term funds from London, simply because confidence in sterling was not great enough for even a 7 pet cent. Bank rate to per- suade foreigners to hold more than their normal working balances in sterling. Now, however, going by the evidence of the monthly trade figures, the amount of 'hot' money in London must be very large, and time is still needed if part of these short-term funds are to be success- fully converted into longer-term investments.
The way in which consumers have spent their income over this period, during which they have been able to buy on credit in conditions which varied from complete freedom (so far as the terms of purchase are concerned) to strict gov- ernment control, suggests that these controls may be able to be used in the future in a much less hit-or-miss manner than has necessarily been the • case so tar, when there has been virtually no experience for administrators to draw on. It seems, for example, that the proportion of in' come which consumers spend on hire-purchase buying varies very much less than in proportion to the amount of the price which has to be paid as an initial deposit. It would not be quite true to say that consumers seem to allot a given pro- portion of their income to buying on hire put' chase; but when credit terms become stiffer theY appear to spend only slightly less in this way, while, by contrast, it seems to take a very great easing of restrictions to produce more than 8 small increase in the amount of income allocated to this sort of spending. There is. of course, a much greater change in the amount of goods bought when credit terms are varied because of the substantial difference in the commitments that can be entered into when the amount of the initial deposit is varied.
Just, however, as it was wrong to attribute to the credit squeeze the whole of the improvement in Britain's external economic position in 1957' 58, so it would be incorrect to explain the whole of the reduction in demand which has recentlY faced British manufacturers of durable consumer goods by the increase in Bank rate to 6 per cent. and the reimposition. in a mild form, of hire- purchase controls. Two other factors were also important, and may indeed together have been of much greater importance. In the first place. the rate at which people have been buying these goods in the last couple of years does suggest that by the spring of this year the market for manY durable goods may simply have become tem- porarily saturated. Given their income, people may just have bought as many washing machines, television sets, motor-cars and so on as that thought they could afford for the time being Finally, domestic manufacturers have doubtedly been hit by the impact of foreign coal' petition, which has become much more severe as import restrictions were gradually lifted. As can be seen from the trade figures, there was in the first few months of this year a (relatively) very sharp increase in imports of both large American and small continental cars. for example. and of other durable household goods'
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