Economic policy and the problem of sterling under Harold Wilson and James Callaghan

Abstract

Sterling’s status in the world economy has often been conceived as a problem for British economic policy making because of its sensitivity to fluctuations in market confidence. In contrast, this paper demonstrates how the appearance of sterling weakness conveyed political advantages for the Wilson/Callaghan government. It shows how the fall in the value of the pound in 1975 and 1976—typically viewed as symptomatic of the ‘problem’ of sterling—actually allowed the core-executive to justify the implementation of deflationary policies while minimising political dissent until the resolution of the IMF crisis, at which point sterling’s recovery removed this buttress, and laid the foundations of the Winter of Discontent