The Affluent Economy, 1951-1964 (AQA A Level History: Component 2: Depth study): Revision Note

The post-war economic boom

The roots of the boom

• The 1950s brought a long economic boom across the Western world

  • Britain shared in worldwide recovery and growing trade after 1945

  • Both main parties backed the post-war consensus of full employment, the welfare state and a mixed economy

• A rising population fed demand

  • The post-war baby boom meant more households, more spending and a wider variety of jobs

  • Full employment gave many families a steady income for the first time in a decade

Rising wages and consumer spending

• Real wages rose through the decade

  • Average weekly money wages roughly doubled, from about £8 in 1951 to about £15 by 1961, well ahead of prices

  • For many, this was the first real rise in living standards since the 1930s

• Consumer goods spread into ordinary homes

  • Cars, televisions, fridges and washing machines became affordable

  • Car ownership rose by around 25% between 1957 and 1959

    • New motorways, beginning with the Preston bypass in 1958 and the M1 in 1959, encouraged further car use

• Hire purchase and the end of rationing fuelled spending

  • Buying on instalments allowed families to own goods before they could fully afford them

  • Rationing ended in 1954, lifting the last wartime limits on consumption

• Not everyone credited the government

  • Labour insider Douglas Jay later argued the Conservatives had "coasted along into the economically easy years of the 1950s", built on the tough post-war policies of the Attlee governments

Approach: Macmillan gave this speech to Conservative supporters at Bedford on 20th July 1957. He was promoting his government’s economic record and presenting rising living standards as proof of Conservative success

The source is useful for showing how the government wanted prosperity to be understood. However, Macmillan also admits that rising prices were a serious problem. This makes the speech useful for showing both confidence in the economy and concern about inflation

Balance of payments issues

What was the balance of payments?

• The balance of payments recorded the money entering and leaving Britain

  • Money entered when Britain sold exports or received income from abroad

  • Money left when Britain bought imports or spent money overseas

• Britain had a balance of payments deficit when more money left the country than came in

Why was a deficit a problem?

• Britain needed foreign buyers and investors to have confidence in the pound

• A continuing deficit made people worry that the pound was worth less than its official exchange rate

• This could lead investors to sell pounds and exchange them for other currencies

• The government then had to protect the value of the pound by:

  • raising interest rates

  • cutting government spending

  • borrowing money from abroad

• These measures could slow economic growth and reduce living standards

Why did Britain keep struggling?

• Wages often rose faster than productivity

  • Workers were paid more, but businesses were not producing enough goods to meet demand

    • This increased costs and contributed to inflation

  • British goods became more expensive and harder to sell abroad

• Britain also faced stronger competition

  • West Germany and Japan invested in newer factories and increased their exports

  • Britain remained more dependent on older industries and traditional Commonwealth markets

  • British exports, therefore, grew more slowly than those of some competitors

Industrial production growth, 1952–59, with each country’s 1950 output set at 100

Recurring sterling crises

• Britain experienced repeated crises when confidence in the pound fell

• During the 1956 Suez Crisis, investors sold pounds because they feared for Britain's economy

• In 1961, another crisis forced the government to:

  • introduce a pay pause

  • borrow more money from overseas

• By 1962, the underlying problem remained: Britain's economy and exports were growing more slowly than those of its major competitors

Approach: This report appeared in The Guardian in April 1962. It covered a critical United Nations Economic Commission for Europe report, which placed Britain at the bottom of the table for economic performance

The source is useful for showing concern about Britain’s relative economic decline. However, The Guardian was a left-leaning newspaper, so its framing may place extra emphasis on the weaknesses of Conservative economic policy. The figures in the original report should therefore be checked alongside the newspaper account

'Stop-Go' economic policies

The stop-go cycle

What was the stop-go cycle?

• Governments repeatedly switched between encouraging economic growth and trying to slow the economy down

• During a 'go' phase, the government:

  • cut taxes

  • lowered interest rates

  • encouraged people and businesses to spend more

• This increased demand and helped the economy grow

• However, it could also cause:

  • rising prices and inflation

  • higher imports, as people bought more goods from abroad

  • pressure on Britain's balance of payments

Why did the government apply the brakes?

• When inflation and imports rose too quickly, the government introduced a 'stop' phase

• It tried to reduce spending by:

  • raising interest rates

  • increasing taxes

  • restricting access to loans through a credit squeeze

• These measures reduced demand and slowed economic growth

• Once the immediate pressure had eased, the government often returned to policies that encouraged growth

  • This created a repeated cycle of short periods of expansion followed by slowdown

Why was this a problem?

• Stop-go policies produced short bursts of growth rather than steady, long-term expansion

• Businesses found it difficult to plan investment because government policy kept changing

• The cycle controlled demand temporarily but did not solve deeper problems such as:

  • low productivity

  • weak investment

  • growing competition from West Germany and Japan

• This approach reflected Keynesian ideas, as governments adjusted taxes, spending and interest rates to maintain demand and employment

The policy in action

• Disagreements over economic policy divided the Conservative government

• In January 1958, Chancellor Peter Thorneycroft resigned after Macmillan rejected his demand for larger cuts in government spending

  • Macmillan dismissed the disagreement as a "little local difficulty"

• Later chancellors continued to alternate between restraint and expansion

  • Selwyn Lloyd introduced a pay pause in 1961 to curb inflation and ease pressure on the pound during a balance-of-payments crisis

  • Chancellors used 'give-away' budgets before elections (Butler 1955, Heathcoat-Amory 1959, Maudling 1963), so the 'go' phases often followed the electoral cycle

  • In 1962, the government introduced the National Economic Development Council, known as Neddy, to encourage long-term economic growth

  • Reginald Maudling then introduced expansionary policies in 1963–64, including a cut in the bank rate to encourage borrowing and spending

• The economy grew by almost 6% in 1964

  • However, imports increased much faster than exports

    • This worsened the balance of payments and showed that the underlying economic weaknesses had not been solved

Approach: Thorneycroft gave this speech in the House of Commons in January 1958, shortly after resigning as Chancellor of the Exchequer. He argued that excessive government spending was behind Britain’s repeated economic crises

The source is useful for showing the disagreement inside the Conservative government over spending and inflation. However, Thorneycroft had just resigned over this issue, so he had a clear reason to defend his own position and criticise the policy followed by the Cabinet

How healthy was the British economy, 1951–1964?

• This question weighs real signs of prosperity against evidence of underlying weakness

  • Some examples for each side are outlined below

The economy was healthy

• Full employment lasted throughout the period

• Wages and living standards rose faster than ever before

• Consumer spending on cars, homes and appliances boomed

• Growth was steady enough to keep unemployment low

• Sterling recovered after each crisis rather than collapsing

The economy was troubled

• Growth was slower than in West Germany, Japan and much of Europe

• Balance of payments and sterling crises kept returning

• Wages outran productivity, feeding inflation

• Stop-go policies blocked steady long-term growth

• Britain relied too heavily on older Empire and Commonwealth trade