Editing Hugh Gaitskell (section)

=== Aftermath ===
A £300m surplus in the British balance of payments in 1950 turned into a £400m deficit in 1951, the most sudden reversal on record up until that time. This was caused partly by businesses switching to rearmament rather than generating exports. The other reason was a deterioration in the [[terms of trade]]: higher oil prices after the [[Abadan Crisis|Iranian oil crisis]] caused an outflow of dollars, whilst prices of wool, tin and rubber fell so the rest of the sterling area was not earning so many dollars from exports. By the second half of 1951 the overseas sterling area was importing from North America at double the 1950 rate. By 1951 inflation was beginning to increase, the government budget surplus had disappeared, and in another sign of an overheating economy unemployment was down to 1945 levels. By the second half of 1951 Gaitskell was worried about the political effect of the higher cost of living, but the ''[[Financial Times]]'' and ''[[The Economist]]'' accused him of using higher prices to choke off consumption and free up resources for rearmament instead of consumer goods production.<ref>Dell 1997, p.152, 154</ref>

Gaitskell again rejected Treasury advice to raise interest rates to cool the economy in June, July and August 1951. He argued that higher interest rates would be perceived as generating profits for the banks, which would not sit well with trade unions, and he was only prepared to consider demanding that the banks restrict credit.<ref name="Dell 1997, p.141" /> Gaitskell (diary 10 August 1951) stated that he and Morrison thought that Attlee had been too weak in dealing with Bevan.<ref>Campbell 2010, p216</ref> By August–September 1951 the Treasury were taken by surprise by a full-on sterling crisis, which they passed on to the incoming Conservative Government. Sterling was trading unofficially at $2.40, below the official rate of $2.80.<ref>Dell 1997, p.158</ref>

Gaitskell visited Washington in the autumn of 1951, where he thought US Treasury Secretary [[John Wesley Snyder]] "a pretty small-minded, small town, semi-isolationist". A committee was formed, containing Plowden and [[W. Averell Harriman|Averell Harriman]], to investigate the way in which US rearmament was absorbing and pushing up the prices of world raw materials.<ref name="Dell 1997, p.151" /> Gaitskell was horrified by Attlee's calling an election (19 September 1951) when he and Morrison were in North America. If Attlee had held on for another six or nine months Labour might have won.<ref>Dell 1997, p.157</ref> Labour lost the [[1951 United Kingdom general election|October 1951 General Election]] despite getting more votes than the Conservatives. Whilst the Bevanites blamed defeat on Morrison's policy of "consolidation", the right blamed Bevan for causing a split. Nobody imagined Labour would be out of power for more than a few years, and Attlee expected to be Prime Minister again by 1953.<ref name="Matthew 2004, p.288" /><ref>Campbell 2010, p217</ref>

When the Conservatives returned to power, the new chancellor [[Rab Butler]] would get the balance of payments back into surplus in 1952 by cutting overseas spending, a measure which Dell suggests Gaitskell had not wanted to irritate the Americans by taking. In his memoirs (''Art of the Possible'', p.&nbsp;163) Butler later called him "a political mouse who, confronted with a gigantic deterioration in the balance of payments, responded by cutting a sliver off the cheese ration".<ref>Dell 1997, p.154</ref> After the Conservatives cut the armament plans in 1952 Crosland told people that Gaitskell had made him look like "a complete idiot" for supporting the budget in public. However, even by the end of 1951 there was less likelihood of the Korean War turning into a general war (the front line had stabilised, with the US administration being clear that they did not wish to escalate hostilities against China), so any government might have pared back defence spending in 1952.<ref>Dell 1997, p.150, 152-3</ref>