Economic history · What the Pound Cost — 1945 to 1976
Eight steps take about twelve minutes, and each one ends in a question. You need no economics and no preparation, only a willingness to guess before you are told.
Britain won the war and could not pay for what it needed the next morning. The American supplies that had kept it fed and armed stopped in August 1945, and everything that followed came out of that: a credit from the United States, a promise about the pound attached to it, a second round of American money in 1948. The ration got tighter after the war rather than easier, and was not lifted in full until 1954.
It ends on 18 September 1949, with the pound at a new price and ten weeks after the government told the Commons that it would not happen.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 8
Every gun, ship, uniform and ration in six years of war had to be paid for, and when the fighting stopped the borrowing that paid for it was still there.
The Office for Budget Responsibility puts Britain’s war debt at 249 per cent of . It is the most the country has ever owed against the size of its own economy. The Office reports on the government’s and its debts.
That is a debt larger than everything the country produced in a year. Taxes brought in far less than the war cost, and the difference was borrowed, year after year, for as long as the fighting lasted.
Government spending reached 62 per cent of national income in 1944-45, the last full year of the war.
The Office for Budget Responsibility has published two. An article of July 2023 gives 249 per cent of national income at the end of the war. A note inside one of its reports, published in July 2013, gives around 270 per cent shortly after the war ended, on other data. Neither page refers to the other and neither explains the difference, so the size of the war debt is stated twice by the same body and reconciled nowhere.
Britain had also stopped making the things it used to sell abroad. The Chancellor told the Commons that “we deliberately forced down our exports to the bare minimum”, to make weapons instead.
Britain had stopped making the things it used to sell. The Chancellor told the Commons in December 1945: “We deliberately forced down our exports to the bare minimum”, to make weapons instead. It still had to buy food and raw materials from abroad, and “some of these supplies cannot be got except from the dollar countries; and ultimately, of course, we can pay for them only from the proceeds of our exports”. Eighty per cent of Britain’s tobacco came from dollar sources. Britain needed dollars for what it had to buy, and had given up making what it would have sold to earn them.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Spending reached 62 per cent of national income in 1944-45. How much was the government raising in tax over those years?
For scale. The Office for Budget Responsibility’s account of the public finances runs back three hundred years, and the war debt is the highest point in all of it.
There have been statements that it was a direct blow at the British Government.
The White House announced the end of on 21 August 1945, within days of the Japanese surrender that ended the Second World War.
The instruction was to stop all Lend-Lease operations at once. Congress, the American parliament, had set the programme up by law. The supplies were cut off suddenly, and Britain’s new government was left without them.
President Truman was questioned about it two days later, at his news conference of 23 August 1945. He gave a reason for the decision there, and denied that it had been aimed at Britain.
President Truman gave a reason for ending Lend-Lease. What was it?
For scale. What replaced the supplies was a loan, signed in Washington on 6 December 1945.
Britain borrowed dollars in Washington to replace the supplies. The loan, which the agreement calls a credit, was 3,750,000,000 dollars, inside a package worth 4,400,000,000 dollars in all.
The agreement was signed in Washington on 6 December 1945. On 12 December the Chancellor of the Exchequer set out its terms to the Commons, the elected house of Parliament.
Some of that total, 650,000,000 dollars, was for the final settlement of Lend-Lease itself, which had to be paid for now that the war was over.
Britain owed money in its own currency too, the run up with the countries that supplied it. The Commons debated those debts country by country and no speaker stated a total, so which debt was the larger cannot be shown.
The credit was to be paid back in equal payments, one a year. Over how many years?
For scale. Interest was set at 2 per cent a year, and no payment of any kind was due for the first six years.
The condition attached to the American credit is a promise about the pound. In December 1945 the United States has offered Britain 3,750,000,000 dollars, and it wants for sterling in return.
The Cabinet Office, the department at the centre of government, has written about what the American credit cost. Britain had to give up , make sterling convertible, and take American terms rather than set its own.
The agreement asks for convertibility within a year of the date it starts to work, which is later than the date it is signed. The pound, or sterling as the agreement calls it, would have to be freely convertible into dollars for trade payments.
You are the British government in December 1945. Do you take the American credit on these terms?
Britain took the credit. The agreement was signed in Washington on 6 December 1945, and on 12 December the Chancellor told the Commons what Britain had promised in return: sterling would be freely convertible into dollars for trade payments within a year of the agreement taking effect.
What followedThe dollars arrived and the promise came due a year after the agreement started to work. From that point on, what a British government could do with its own money was fixed by the promise it had given the United States about the pound.
Britain had promised that anyone holding pounds could ask for dollars instead. The promise was kept, and then people asked.
Sterling became convertible into dollars in July 1947, a year after the American loan agreement started to work.
Sterling earned in trade could now be changed into dollars, and holders of it did that. The British government told the United States that sterling was being changed into dollars faster every week.
Britain had stopped making the things it used to sell. The Chancellor told the Commons in December 1945: “We deliberately forced down our exports to the bare minimum”, to make weapons instead. It still had to buy food and raw materials from abroad, and “some of these supplies cannot be got except from the dollar countries; and ultimately, of course, we can pay for them only from the proceeds of our exports”. Eighty per cent of Britain’s tobacco came from dollar sources. Britain needed dollars for what it had to buy, and had given up making what it would have sold to earn them.
Britain paid out a dollar for every pound anyone brought in, from the same store of dollars it needed for what it had to buy.
Convertibility was over inside the same summer of 1947. Parliament had stopped sitting on 13 August 1947, so no minister told the Commons. Every published date for it comes from the papers the United States government publishes.
The promise had been the price of the American credit, and Britain gave it up in the same summer it began to keep it.
Parliament had stopped sitting on 13 August 1947, so no minister told the Commons. The British government notified the United States on 19 August and an order made the suspension law on 21 August. Both of those documents are published by the United States government, which is why every published date for the end of convertibility comes from American papers rather than British ones.
Sterling became convertible into dollars in July 1947. How many days did that last?
For scale. Britain had promised in the loan agreement of December 1945 to make sterling convertible, and the agreement allowed a full year from the date it started to work before Britain had to keep that promise.
Britain had borrowed from America once and spent it. The American money that came next did not have to be paid back.
American money came again from April 1948, as , and Britain took the largest single share of it.
The Congressional Research Service, which briefs the American Congress, puts the programme at roughly 13.3 billion dollars of assistance to 16 countries. The United States State Department, which runs American foreign policy, keeps its own account of the same programme.
The money was allocated country by country, and Britain was given more of it than any other. Sixteen countries were paid out of the programme, between 3 April 1948 and 30 June 1952.
The Congressional Research Service, which briefs the American Congress, puts the programme at roughly 13.3 billion dollars of assistance to 16 countries. The United States State Department, which runs American foreign policy, gives over 12 billion dollars for the same programme. Only the first of them publishes the allocation country by country: the State Department’s page carries no breakdown of any kind and does not mention Britain.
Marshall Aid was allocated country by country. Which of these two was given more?
A tie counts as correct either way.
For scale. Britain’s American credit of December 1945 had been 3,750,000,000 dollars, and this was a second round of American money on top of it.
Rationing got tighter after the war rather than easier, and the first cut came on 27 May 1945. Bacon went from 4 ounces to 3 and cooking fat from 2 ounces to just one, three weeks after the war in Europe ended.
Bread came under for the first time in 1946, having come through the whole war unrationed.
Potatoes went on the ration too, for the first time. The wet summer of 1946 and the hard frost of early 1947 devastated the wheat harvest and ruined much of the stored potato crop.
Clothing came off the ration on 15 March 1949. The minister in charge of trade, Harold Wilson, had told the Commons the day before that coupons would no longer be required for clothing or textiles.
Rationing did not end with the war. When did the last food come off the ration?
For scale. Britain was the very last country in the war to give up its wartime rationing system, almost a full decade after the Second World War had ended.
His Majesty’s Government have not the slightest intention of devaluing the pound.
A country that cannot sell enough abroad runs short of the money it needs to buy with.
The pound was cut on 18 September 1949, in a broadcast by the Chancellor, from a price of $4.03 that it had held through 1946, 1947 and 1948.
The Chancellor gave the reason on 27 September. American and Canadian prices had risen faster than British ones and were now falling faster, so “the sterling area sales in those countries were falling off”. Goods that do not sell there earn no dollars.
He had told the Commons on 6 July that His Majesty’s Government had not the slightest intention of devaluing the pound. Ten weeks later he announced a .
The had come down to £82 million in the first quarter of 1949. By the second quarter it was back up to £157 million.
A cheaper pound makes British goods cheaper to anyone paying in dollars. The Chancellor said the change had “suddenly opened up immense possibilities in the North American market”.
The pound had been worth $4.03. What was it worth after 18 September 1949?
For scale. Much of the rest of the world followed Britain and cut the value of its own money too.
Module 1 of 6 in What the Pound Cost — 1945 to 1976
Britain’s debt at the end of the war, and the second figure the same body publishes
249% and around 270%When the American supplies stopped
21 August 1945How long Britain had to pay back the American credit
50 yearsThe condition attached to the credit
sterling convertible within a yearHow long lasted
thirty-seven daysallocated to the United Kingdom
3,189.8 million dollarsWhen the last food came off the ration
1954What the pound was cut to
$2.80You met ten terms in this module
, , , , , , , , ,
[1] The war debt: Office for Budget Responsibility, 300 years of UK public finance data. Published 20 July 2023. “At the end of WWII, Britain’s debt stood at 249 per cent of GDP, an all-time high.” The article names no debt measure anywhere and attaches no fiscal year to the figure, and it is printed here with that vagueness intact. The same article gives spending at 62 per cent of GDP in 1944-45, 80 per cent of it defence, and tax revenues at 39 per cent of GDP with no year attached.
[2] The other war debt figure: Office for Budget Responsibility, Post-World War II debt reduction. A box in the Fiscal sustainability report of July 2013. “Shortly after the end of the Second World War, UK government debt peaked at around 270 per cent of GDP.” Its data is named on the page as IMF national debt and ONS government debt data from June 2013, a different vintage from the 2023 article. Neither page refers to the other and no bridge between the two figures is published on either.
[3] The end of Lend-Lease: Foreign Relations of the United States 1945, volume VI, document 55. “Statement Issued to the Press by the White House, August 21, 1945, on Discontinuance of Lend-Lease Operations”. It opens: “The President has directed the Foreign Economic Administrator to take steps immediately to discontinue all lend-lease operations”. 21 August is the announcement; 23 August is a news conference two days later, and they are two events.
[4] Truman on why it ended: Harry S. Truman Library, The President’s News Conference, 23 August 1945. The reporter: “Can you tell us the reasons for termination of lend-lease? There have been statements that it was a direct blow at the British Government.” Truman: “That is not true at all.” He continued that the bill was passed by Congress defining lend-lease as a weapon of war, and “after we cease to be at war it is no longer necessary”, adding “I am merely living up to the promise I made as Vice President of the United States.”
[5] The American credit and its terms: Hansard, Commons, 12 December 1945, Anglo-American Financial and Economic Discussions. Hugh Dalton, Chancellor of the Exchequer: “we obtain a further credit for 3,750,000,000 dollars, making a total of 4,400,000,000 dollars in all.” “It bears interest at 2 per cent.” “Thereafter the loan is due to be repaid in equal annual instalments of 140,000,000 dollars—about £35,000,000—over 50 years.” “No payment is due, either of interest or principal, until 31st December, 1951, six years hence.” A further “650,000,000 dollars… for the final settlement of Lend-Lease”. And the condition: “we have now agreed to restore, within a year from the effective date of entry into operation of that Agreement, the free convertibility of sterling for current trade.”
[6] What the agreement cost Britain: Cabinet Office, Gill Bennett, What’s the Context? Signing the Anglo-American Financial Agreement, 6 December 1945. History of Government blog, 7 December 2020. “an agreement was signed in Washington for a US loan to the UK government of $3.75 billion”. “In return for financial help Britain must abandon imperial preference, make sterling convertible, and effectively accept client status.” The US decision cut off wartime Lend-Lease “abruptly after VJ-Day in August 1945” and was “a shock to Britain’s newly elected Labour government”; she gives no day in August. “The UK’s final payments on this, and a loan from Canada agreed in March 1946, would not be made until December 2006.”
[7] The debts Britain owed in its own money: Hansard, Commons, 15 November 1949, Sterling Balances. A debate held under that title in which no speaker states a total or an aggregate sum for the sterling balances. It runs country by country, on India and on Persia’s £5¾ million rising to £8 million. The one large round number in it is a backbencher’s phrase for war-time debts, which is not an official aggregate and is printed nowhere here.
[8] The suspension, as Britain gave notice of it: Foreign Relations of the United States 1947, volume III, document 37. Telegram of 19 August 1947 from Acting Secretary of State Lovett, reporting the British government’s “intention to suspend as of close of business today transfer of sterling to dollar accounts, in effect terminating convertibility”, and its reason, the “rapid increase rate of weekly drawing”, with figures having risen from 77 million to 237 million over recent weeks.
[9] The order that gave it legal effect: Foreign Relations of the United States 1947, volume III, document 41. A telegram dated 20 August 1947 reporting a Treasury order effective 21 August, SRO 1947 No. 1785: “Sterling can no longer be freely transferred from transferable account (of nonresidents of the sterling area) to American accounts or Canadian accounts but remains otherwise transferable as hitherto.” 20 August is the date of this document and not the date of an event, and no institution publishes it as a suspension date.
[10] The thirty-seven days: Alain Naef, An Exchange Rate History of the United Kingdom, chapter 1, Cambridge University Press, 2022. “A year later, convertibility of the pound was put in place.” “On 19 August 1947, convertibility was suspended.” “Britain attempted to restore current account convertibility at the insistence of the United States, but the government abandoned the policy after a mere thirty-seven days.” This is a publisher rather than an institution, which is why the module prints July 1947 and not the precise day this account gives for it.
[11] Why the dates come from Washington: Hansard, House of Commons sittings, August 1947. The House sat on 1, 4, 5, 6, 7, 8, 11, 12 and 13 August 1947 and on no later day that month. There was therefore no statement to the Commons when convertibility was suspended, and every published date for it comes from the American diplomatic record.
[12] Marshall Aid, country by country: Congressional Research Service R45079, The Marshall Plan: Design, Accomplishments, and Significance. Dated 18 January 2018. “roughly $13.3 billion… of assistance to 16 countries”. Table 2, European Recovery Program Recipients, 3 April 1948 to 30 June 1952: United Kingdom $3,189.8 million, France $2,713.6 million, with the United Kingdom first in the table. This is a verbatim mirror, used because both official hosts refuse this tool. The percentages on the table are shares of the country totals rather than of the headline, and are not printed here.
[13] The same programme, a different total: United States Department of State, Office of the Historian, Milestones 1945-1952, The Marshall Plan. Congress “approved funding that would eventually rise to over $12 billion for the rebuilding of Western Europe”, under an Economic Cooperation Act of March 1948. The page gives no country-by-country breakdown of any kind, gives no closing date for the programme, and does not mention the United Kingdom or Britain anywhere.
[14] The ration: Imperial War Museums, The impact of rationing on the Home Front during the Second World War. “On the 27th of May 1945, barely three weeks after VE Day, cuts were made to the basic ration. Bacon went down from 4 ounces to 3 ounces, cooking fat from 2 ounces to just one, and part of the meagre meat ration of one shilling two pence had to be made up of corned beef.” “The terrible wet summer of 1946 and the hard frost of early 1947 devastated the wheat harvest and ruined much of the stored potato crop, forcing Britain to ration bread and potatoes for the first time.” “At long last, on the 30th of June 1954, the final restriction was lifted when meat came off the ration.” “The UK was the very last country to abandon its wartime rationing system almost a full decade after the Second World War had ended.”
[15] Bread, and the year it was rationed: The National Archives, Attlee’s Britain. “rationing was actually extended during the post-war era, and in 1946 bread was rationed for the first time”. This is where a year properly attaches to the rationing of bread; in the Imperial War Museums’ own sentence the years 1946 and 1947 attach to the weather.
[16] Clothing off the ration: Hansard, Commons, 14 March 1949, Clothes Rationing (Abolition). Harold Wilson, President of the Board of Trade: “From tomorrow morning coupons will no longer be required for the purchase of any kind of clothing or textiles.” The statement was made on 14 March and took effect on 15 March 1949.
[17] The order that closed the scheme: The Food Rationing (Amendment and Revocation) Order, 1954, SI 1954 No. 797. This is the King’s Printer text, read as a scanned PDF because the HTML refuses this tool. Made 17 June 1954, laid before Parliament 18 June, coming into operation 21 June, “save that Article 3 thereof shall not come into operation until the 4th day of July, 1954”. Article 3 cancels the Orders in the Schedule, among them The Meat (Rationing) Order, 1954 and The Bacon (Rationing) Order, 1954. Signed G. Lloyd-George, Minister of Food.
[18] The devaluation explained to the Commons: Hansard, Commons, 27 September 1949, Sterling Exchange Rate. Sir Stafford Cripps refers to “The Chancellor, in his broadcast on 18th September”. “we fixed the rate at 2.80 dollars to the pound, that is, a 30 per cent. reduction in value of the pound.” And: “First quarter of 1948, a gold and dollar deficit of £147 million; falling to £82 million in the first quarter of 1949. The figure for the second quarter of 1949 was, however, £157 million, rather higher than a year earlier—so all our progress already made towards bridging the gap had been wiped out.” £157 million is a gold and dollar deficit and is named here as one.
[19] The denial: Hansard, Commons, 6 July 1949, Gold and Dollar Reserves, column 2160. Sir Stafford Cripps, Chancellor of the Exchequer, answering Major Henry Spence: “His Majesty’s Government have not the slightest intention of devaluing the pound.” Date, speaker, wording and column all confirmed. It is ten weeks and four days before 18 September 1949.
[20] The size of the move: EH.net, Encyclopedia of Economic and Business History, The Sterling Area. “Following the 1949 devaluation of the British pound, by 30.5% from US$4.03 to US$2.80, much of the rest of the world, and almost all of the Sterling Area, devalued too.” The Chancellor’s own 30 per cent. and this 30.5% are a round figure and a calculation of one and the same move.
[21] What the pound was worth, year by year: Bank of England, A Millennium of Macroeconomic Data, research datasets. Sheet A33, annual dollars to the pound: 4.03 in 1946, 1947 and 1948; 3.62 in 1949, an annual average spanning the September break; 2.80 in 1950 and 1951. The monthly sheet M15 gives 4.03 in July 1949 and 2.801 in October 1949. The Bank publishes these numbers and no account of either 1947 or 1949.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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