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Last Updated: Friday, 9 November 2007, 16:56 GMT
The Pound In Your Pocket - 18 November
By Simon Vaughan
Producer, The Pound In Your Pocket

Forty years ago the pound was a currency in crisis.

To save it, Prime Minister Harold Wilson was forced to turn to devaluation.

The Pound in Your Pocket graphic
BBC Parliament will screen a series of programmes on devaluation from 1800 GMT on 18 November 2007
The price of sterling on the currency markets fell but he reassured a nation that the pound in their pockets had not been devalued.

When Labour came to power in October 1964 it inherited a turbulent financial situation from the Conservatives.

From the moment they took office, Wilson and his Chancellor James Callaghan fought to defend the value of sterling.

Harold Wilson
Harold Wilson interviewed in the BBC Panorama studio in September 1967

Devaluation was a dirty word. It was never mentioned in government circles.

Economists and financial journalists would only whisper it in private.

Turbulence

Meanwhile the news was dominated by talk of trade deficits, speculative attacks on the pound and the dreaded black hole in the balance of payments.

Britain struggled to pay its way in the world.

COST OF LIVING
1 in June 1967 would be equivalent to 13.19 today
Source: Office of National Statistics

Throughout 1965 and 1966 Prime Minister and Chancellor did all they could to avoid devaluing sterling.

Taxes were raised and the bank rate increased.

Capital Gains Tax was created and loans taken from the Bank of England and the IMF.

Government building projects were suspended and a new pension plan postponed.

Cliff Michelmore
Cliff Michelmore returns to our screens to present the evening of programmes on Devaluation
Sterling was a world reserve currency and regarded by the US Federal Reserve as the first line of defence for the dollar and integral to the stability of the international monetary system.

Wilson believed that too much depended on the pound to ever consider devaluation.

The fixed exchange rate that operated back then valued the pound at $2.80.

The government struggled to maintain that rate in the face of market speculation, industrial action and world events.

In today's world of floating exchange rates, where currency values fluctuate daily, the religious adherence to an artificially-fixed price seems incredible.

War

During 1967 the financial situation continued to darken and by June things were looking grim.

The Arab-Israeli war forced the closure of the Suez Canal. Trade ships had to take the long way round Africa to get to Europe.

Israeli troops
Israeli troops advance in southern Sinai during the Six Day War (AP)
When these ships arrived in the UK, already behind schedule, they found the British ports closed due to strike action by dock workers.

Many Arab countries switched their sterling balances in London to dollars and moved them to Zurich or other financial centres.

This put pressure on the foreign exchanges, the markets and on the already bleak trade figures.

In a last-ditch attempt to save sterling and stabilise the economy, the Government hurried through a devaluation.

It does not mean that the pound here in Britain, in your pocket, in your purse or bank has been devalued
Harold Wilson in his broadcast to the nation

At 9.30pm on Saturday, November 18 1967 the Labour government devalued sterling by 14.3%, reducing its value to $2.40.

It sounds a small matter today, but back then it was a momentous occasion.

An occasion carefully underplayed by the Prime Minister, Harold Wilson, in his famous television broadcast: "It does not mean that the pound here in Britain, in your pocket, in your purse or bank has been devalued."

To mark the 40th anniversary of the devaluation BBC Parliament has put together an evening of archive programmes looking back at those turbulent days of the winter of 1967.

Cliff Michelmore returns to the BBC to follow the story of the ailing pound as the saga unfolded at the time - from devaluation in November 1967 to the harsh budget ("stage three of devaluation") in March 1968.

Join Cliff Michelmore for The Pound In Your Pocket at 1800 GMT, Sunday November 18 on BBC Parliament. Visit the website for a full rundown of programmes.

SEE ALSO
The Cabinet at 1967 Devaluation
12 Nov 07 |  BBC Parliament
Economic terms explained
12 Nov 07 |  BBC Parliament
Contributors in full
13 Nov 07 |  BBC Parliament


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