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What’s the Context? 18 November 1967: Devaluation of Sterling

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‘Faith, hope and parity’

On Saturday, 18 November 1967, sterling was devalued by 14% from $2.80 to $2.40. Although rumours of impending devaluation had been widespread in the press, including in Europe and the United States, the announcement by the Labour government headed by Harold Wilson administered a severe shock to international confidence and to domestic opinion in the UK. Appearing on television the following day, the Prime Minister’s assurance, that ‘the pound here in Britain, in your pocket or purse or in your bank’ was worth no less than before, was seen as a damaging blunder. The Chancellor of the Exchequer, James Callaghan, had vowed to resign if sterling were devalued, and was replaced by Home Secretary Roy Jenkins, who spent the next six weeks drawing up a programme of swingeing cuts at home and abroad that were to be fought over bitterly in Cabinet in January 1968.

Prime Minister Harold Wilson with James Callaghan walking towards the camera. They both look happy
Prime Minister Harold Wilson with James Callaghan (Keystone Pictures USA/ Alamy).

Yet devaluation, despite being an unmentionable word in Cabinet, ministerial or official discussions (papers referring to it were burned), had long been on the cards; many thought it should have happened long before, perhaps even when the government took office in 1964. Since then ministers had struggled with recurrent economic difficulties, including a sterling crisis in the summer of 1966 only weathered with US support. In 1967, a combination of domestic and overseas events would make devaluation inevitable. But for Wilson and Callaghan, refusal to countenance devaluation had been a point of principle, symbolic of a range of issues, economic, moral, personal and political.

‘The government was in headlong retreat in the face of forces it was no longer able to control’

The Labour government had weathered a number of economic storms since 1964, but actually achieved a budget surplus in the first half of 1967. However, from the summer onwards a series of events destabilised the economy, in particular the Arab-Israeli Six-Day War in June, leading to the closure of the Suez Canal and subsequent sharp rise in oil and other commodity prices. The Americans were unwilling to bail sterling out yet again, particularly since defence cuts entailed withdrawing British forces from East of Suez at a time when the US Administration was embroiled in Vietnam. The government was also beset by a range of complex foreign policy issues, including Sino-British tension after the torching of the British Embassy in Peking in August, riots in Hong Kong, civil war in Nigeria, sanctions against Ian Smith’s regime in Rhodesia and the early withdrawal of British forces from Aden. HMG’s global responsibilities were both heavy and unsustainable, further weakening sterling

Also, although Britain’s renewed application to join the Common Market was not rejected formally until December 1967, General de Gaulle had already said ‘non’, and the Six EEC members were busy with what Harold Wilson called ‘financial manoeuvrings’, spreading rumours about British economic instability that led to heavy drawings on sterling. The situation was made worse by damaging strikes on docks and railways in September 1967, further increasing the trade deficit and leading to a rise in the bank rate. By early November, the outpouring of sterling, combined with rumours that Britain was seeking an international loan led even those most opposed to devaluation realise that it was inevitable.

Devaluation as a ‘moral issue’

The word ‘moral’ was often used, both at the time and in retrospectively, about the 1967 decision to devalue. Transport Minister Barbara Castle wrote in her diary of Callaghan’s ‘high moral tone’ in the House of Commons when describing devaluation as a defeat for government policy; Foreign Secretary George Brown, together with the TUC, took the traditional Labour view that devaluation was a betrayal of the working classes; the Bank of England was opposed on principle, although Alec Cairncross, Head of the Treasury’s Economic Section, told the Chancellor it was his ‘moral responsibility and public duty’ to act. Callaghan wrote about the ‘emotional effects’ of a decision that seemed to him to reflect badly both on Labour and on Britain as a trading country. For Harold Wilson, the memory of devaluation in 1949, when he was President of the Board of Trade, made him very reluctant to take a decision he felt could damage his government as it had that of Clement Attlee.

‘Did you ever see the knife put more deliberately into a leader’s back?'

But however high Callaghan’s moral tone, the way the Chancellor handled the devaluation and its aftermath were widely perceived as a power play in his rivalry with Wilson. Conscious of this political backdrop, officials tended to be over-cautious in their advice, lacking a major figure like JM Keynes−who believed one should change one’s mind when circumstances changed−to challenge prevailing orthodoxy. The press were quick to contrast the over-optimism of the Prime Minister’s broadcast with the Chancellor’s solemn speech in the House, and rumours of a power struggle were rife. Wilson, always alert to a threat to his position, was certainly aware of this when appointing Jenkins, rather than Crosland, to the Exchequer, while giving Callaghan the Home Office rather than letting him cause trouble on the back benches while, as Richard Crossman put it, ‘intriguing with the City’.

‘Devaluation was something one occasionally did, because one was forced to, but never recommended’

Harold Wilson had both personal and political reasons for delaying devaluation until it was unavoidable. But as Prime Minister, he also bore the responsibility for the whole gamut of government policy, domestic and foreign, as well as trying to maintain an uneasy balance between different interest groups within his Cabinet, the Labour Party, and the Trade Unions. Those who criticised the devaluation as too little, too late, badly handled or ineffective, rarely appreciated the pressures faced by key ministers. Like Callaghan, Harold Wilson was reluctant to take a step that implied that Labour’s economic policies were a failure. But in the end, ‘events which could not have been foreseen a week earlier, except in nightmares, took charge with a rush’. In such circumstances, Prime Ministers face hard choices, both in taking decisions and in explaining them afterwards. The 1967 devaluation is a good illustration of this.


Further Reading

  1. ‘Faith, hope and parity’ Phrase used in the analysis of the 1967 devaluation decision in Jock Bruce-Gardyne and Nigel Lawson, The Power Game: An examination of decision-making in government (London: Macmillan, 1976).
  2. ‘The government was in headlong retreat in the face of forces it was no longer able to control’. Kenneth O. Morgan, Callaghan: A Life (Oxford University Press, 1997), p.266.
  3. ‘Did you ever see the knife put more deliberately into a leader’s back?’ Barbara Castle. The Castle Diaries 1964-70 (London: Weidenfeld and Nicolson, 1984), p. 328.
  4. ‘Devaluation was something one occasionally did, because one was forced to, but never recommended’.  Bruce-Gardyne and Lawson, p. 143.
  5. ‘events which could not have been foreseen a week earlier, except in nightmares, took charge with a rush’. Harold Wilson, The Labour Government 1964-70 (London: Penguin, 1974), p. 570.

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  1. Comment by David Matthew posted on

    I have never heard of the burning of papers, what evidence is there of this (document references?)?. As far as the public were concerned was that Sterling had been devalued whilst they were on holiday abroad and their Pound was worth much less than when they left the UK.

  2. Comment by Gill Bennett posted on

    For destruction of papers on devaluation, see references in the book by Bruce-Gardyne and Lawson, e.g. p. 130 for the burning of a report in Feb 1966.