From 1945 onwards, following the end of the Second World War, Britain experienced a deep economic crisis that would set in motion the beginning of its decline as a world power.
The industrial and manufacturing base that propelled the nation to its position of global strength had been severely damaged during the war, and substantial social disruption followed.
Limited resources and a lack of sound economic planning saw a deep slump in productivity, and the cost of foods and services rose significantly.
The welfare state initiated in 1945 was intended to alleviate the poverty and deprivation faced by the population, but it had insufficient funding and the level of poverty in some areas increased.
It soon became apparent that Britain’s traditional export markets were in decline, particularly following the widespread nationalizations and protectionist tariffs implemented by other industrial nations.
This led to an erosion of Great Britain’s share of world exports, and to a hollowing out of its economic base.
The series of Sterling crises in 1947, 1949 and 1967, triggered by international speculation on the Pound, earned Britain the unflattering title ‘the sick man of Europe’.
This damaged further the already fragile confidence of both domestic and international investors and creditors in the British economy, and had a devastating impact on the country’s economic performance.
Run on the Pound Sterling
The Conservative government led by Winston Churchill did little to address the long term structural deficiencies within the economy. These included the need for modernization and modernization of the manufacturing sector, and for an appropriate strategy for dealing with the Sterling crisis.
Attempts by the government to prop up the Pound by borrowing from the International Monetary Fund (IMF) did not work, and there were serious problems in the balance of payments by 1964.
The 1964/5 devaluation of the Pound following a sterling crisis was followed by speculative runs on the currency, and a severe credit squeeze.
The Conservative government linked to the crisis managed to secure a loan from IMF in February 1968, the first for a major European economy since the Second World War.
However, the loan combined with a severe monetary squeeze, only increased poverty in the country and did not resolve the structural long term problems of the economy.
International speculators, taking advantage of the increased instability of the Pound, took profitable short term positions on opportunities that arose in the currency markets.
Economic Neglect
By the end of the 1960s, the British economy had become amongst the most inefficient in the developed world due to a lack of investment in education, infrastructure, and modern technology.
The decline was further exacerbated by the failure of successive governments to invest in the development of new technologies and industries, and by their refusal to tackle structural flaws in the economy, such as the strong Labour unions with their high wage demands.
This lack of forward thinking and strategic planning meant that Britain’s share of world trade and commerce went into reverse.
Britain’s balance of payments also became increasingly negative as its imports considerably outstripped its exports of both manufactured goods and services, adversely affecting both domestic and international confidence in the pound.
Widespread industrial unrest in the 70s and 80s, due to an increasingly uncompetitive industrial climate, served to add to the economic woes of the nation.
The country’s industrial and manufacturing units, so integral to its previous success, endured structural ageing and obsolescence, becoming unable to compete in the global market.
The Rise of Europe
As Europe began integrating into a single market, the British economy was left behind. It was unable to benefit from the prosperity and common trading policies of the European integrated nations, and as such, was severely disadvantaged in the international markets.
The end of the British Empire in the wake of India’s independence brought greater attention to the country’s economic decline.Though many of its former colonies remained in the Commonwealth, Britain’s fortunes never recovered as the less powerful members of the Commonwealth had no obligation to stay loyal to British interests.
As friction between Britain and the European Community escalated in the 1980s, Britain found itself excluded from much of the EU’s policies and resources.
This further impaired the competitiveness of the British economy by denying it access to much of Europe’s financial and legal support systems.
The failed 1990 ERM (exchange rate management) fiasco served as the final symptom of Britain’s ailing economy, highlighting its persistent structural weakness, and demonstrating the inability of the government to provide the country with clear and viable economic prospects.
Mass Migration
The harsh realities of a declining and unstable economy took its toll on the entire nation. Hundreds of thousands of people chose to leave Britain in search of better economic prospects abroad.
The inward migration of skilled professionals from countries like Ireland, the Indian subcontinent, Bangladesh, Africa, and other parts of Europe provided an influx of skilled labour that filled the gaps in the economy created by the mass exodus of Brits.
This mass migration of professionals in turn gave rise to an infusion of foreign culture and ideas into the fabric of British society, resulting in a dramatic transformation in the country’s social landscape as well as being an indication of the significant economic decline.
Flawed Policies
The end of the Second World War saw Britain widely regarded as a major player in the international community. But times changed, and with successive governments unable to address the structural problems in the economy, the country’s economic decline increased.
The lack of forward thinking in terms of investment in industry, technological development and research meant Britain was unable to adequately respond to the globalization occurring in the world around it.
Attempts by the government to inject life into the ailing economy through Keynesian policies and the introduction of a welfare state, or to stay competitive by joining the Euro exchange markets were flawed. These only compounded the problems and increased the country’s woes.
Subdued Mood
The economic decline of Britain had far reaching implications, not only at the national level but at the international level as well.
By the late 1980s, Britain’s leading role in the world had been drastically diminished and its market share of the world economy had halved.
The low morale among the British public was evident, with a general sense of disaffection and an overall sense of decline pervading the nation.
Consequences
The consequences of the economic decline of Britain were considerable. Billions of pounds of lost investment drained the country’s economic health and weakened its position in international markets.
Unequal economic distribution created poverty and deprivation, which in turn sparked social unrest and other social ills.
Moreover, the impact of the economic decline on the British psyche was considerable, with society wracked by general disaffection, political apathy and economic pessimism.
Brexit
The referendum in 2016 to leave the European Union was driven in large part by the economic decline of Britain and a desire for its citizens to ‘take back control’ of their future. It proved to be a decisive moment in the country’s political and economic history.
The long-term effects of this decision are still unclear, as the post-Brexit environment is likely to be quite different from the pre-Brexit era.
Nonetheless, it is clear that the economic decline of Britain in the decades following the end of the Second World War has been both deep and profound, and has had a dramatic impact on the country’s future prospects.
