Further Credit Squeeze

Press, Volume CVI, Issue 31114, 18 July 1966, Page 11

Further Credit Squeeze

(N.Z.P.A.-Reuter— Copyright) LONDON, July 17. Fifty million Britons are bracing themselves for a further move in the biggest credit squeeze since the end of the Second World War. The Prime Minister, Mr Wilson, warned the nation yesterday before leaving for Moscow that his ministers were busy preparing a “package deal." Mr Wilson will be in Moscow for three days and will fly home on Tuesday for a further Cabinet meeting. He is expected to outline the new economic measures on Wednesday, observers said. The Labour Government, fighting to defend sterling and bolster the nation’s sagging economy, has already raised the bank rate, the key monetary loan rate, from 8 to 7 per cent It has frozen £lOO million of bank funds and barred industrialists from extra bank credit to finance payment of new taxes to be levied in the next (northern) autiimn.

But these measures brought no immediate sign of an improved trend. Only 24 hours after they were announced the sterlingdollar exchange rate slumped on Friday from 2.7880 to 2.7869 and stock market share values dropped by millions of pounds. The main cause of the share prices slump, financial sources said, was the continuing uncertainty over where the second broadside in the current credit squeeze would fall. Selling pressure in foreign exchanges weakened the pound before the week-end market closure. Mr Wilson has told Parliament that the new curbs will affect the internal economy and also involve cuts in Government spending overseas. This was taken by observers to mean further restrictions in military spending, future aid to developing nations, and economies in diplomatic and other missions abroad. At home, the Government may increase taxes, tighten hire-purchase buying, and possibly introduce some kind of wage and dividend freeze. Only this week, a Government bill to control prices and incomes—the keystone in

Britain’s long-term economic planning—was introduced in the House of Commons. It would set an annual 3J per cent norm for both wages and price increases. Some financial experts have suggested that the Government might now be forced to revise this figure to 2} per cent because of the current economic blizzard. Political sources have disclosed that ministers responsible for the Government’s major departmental spending are fighting to save their own programmes' from the second swing of the economy axe. They also believe the Labour Cabinet is split over what curbs it should make. Major critic of the Labour Government's moves today was the Conservative Opposition Leader, Mr Edward Heath. He said the Government had landed Britain in the gravest economic crisis since 1951. Its complacency and incompetence had placed the pound in jeopardy he told a political rally in London.

Shipping Talka.—lndonesia and Britain are expected to hold talks soon aimed at the resumption of British shipping services to Indonesian ports.—London, July 17.