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Purely Domestic. Having sworn so long to defend the pound against even the idea of devaluation, Harold Wilson gave plenty of new ammunition to the Tories when he broke his word. Tory Leader Ted Heath greeted the news by saying, "I utterly condemn the government for devaluing the pound," but Quintin Hogg, the Tories' shadow Home Secretary, made a more telling thrust: "People are angry and humiliated by this decision," he said. "At last they will realize that the Labor government cannot govern with its financial policies."
Still, few feel that Harold Wilson is about to lose his job. Though the Tories would certainly demand a censure vote, Wilson, with Labor's 80-plus seat majority, would almost as certainly win it. And unlike Attlee, who devalued in 1949 with only a few months of his term left, Wilson has until 1971 before he must call a general election. If devaluation at last begins to set Britain on the road to economic health, Wilson could go to the country by then with less trepidation.
The question in Britain, and around the world, was whether the devaluation would really work. The bankers of The Club are understandably a skeptical lot where British promises are concerned. Early last week several dismissed talk of devaluation. "A temporary respite," said the Deutsche Bank's Hermann Abs. "Not a real solution," observed Swiss Union Bank Chairman Dr. Alfred Schaefer. "Devaluation alone would only be a temporary measure," said Bank of America President Rudi Peterson. The British are well aware that devaluation alone is not enough. Chancellor Callaghan indicated that the government would couple it with enough muscle at home to ensure a turnabout into the black in the balance of payments of "$1.2 billion a year." The giant Trades Union Congress was due to meet this week to discuss voluntary wage restraints, essential to ensure that a new round of wage and price in creases does not quickly nullify the gains of the devaluation. But the feeling abroad was that Wilson had devalued as a purely domestic political move, being unwilling to suffer the political consequences of imposing the strict economic reforms that the world banking community is convinced Britain needs.
The Larger Market. The ripples of the pound's plunge inevitably reach far beyond Britain. The U.S. had long pressed massive loans on Wilson in lieu of devaluation because it feared the effect on the dollar. "If it can happen to sterling," observed one Treasury consultant, "people are sure to ask, can't it happen to the dollar too?" Some probing speculation against the dollar this week seemed likely.
Perhaps the most positive effect of devaluation could be on Britain's application for Common Market membership.