Economic situation

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Economic situation

H.M. 

First 2 quarters of '56 were periods of recovery - + 157 and +108 $m.  In 3rd. quarters we lost 57$m (despite 175m. on Trinidad & Austr. gold 50m.)  Real loss was therefore 288$m.
  In Oct. we lost 84$m.
  In Nov. we lost 44/78/102/54 : Panic week 10-17/xi.  Due to w'drawal fr. Europe into dollars & Swiss fr. via sterling.  Final figure 270$m.  Tho' real loss is heavier - 381$m. 
 This figure will shake confidence in sterling & st. area. 
 When U.S. recover fr. their anger, they will see need to support sterling.
 To m'tain confidence we must strengthen sterling by -
  {1) Drawing from I.M.F.
  { Mobilising dollar securities as collateral for borrowing in U.S.
  {2) Close pol. breach with U.S. & thereby reduce pressures on £. 
   For face £200 M. deterioration in b/p. in 1st. half of '57 thro'
   purchase of oil : tho' we may be able to mitigate this.
 More generally - oil shortage may cause unemplt. - if we drop below 75% of oil supplies.
  3) Internal measures to strengthen U.K. economy.  Only 2 practicable methods : i) 1/- tax on petrol, with rebate for public passenger traffic.  ii) 6d. on income tax, in next Budget.
  On i), effect on industry is negligible : on transport not v. severe. 
   With rebate for passengers, it wd. be tolerable.
  On ii) we can't do it at once because of PAYE  Is there merit in
   announcing intention in advance?
    | Sealed instructions will have to go to 500 officials to-day, to be opened 
 x |  on Monday.  If i) is to be done, it wd. be dishonourable not to do it next week i.e. before F.A. debate.
 After discussion, agreed that decision on internal measures shd. be taken out at a subsequent meeting.  M'while x/ to proceed.