Slump and Recovery: The UK Experience

The world economy was in considerable disarray following the end of the First World War. Initially the international trading and payments system was dominated by flexible exchange rates but from the mid-1920s the cornerstone of international economic management was a reconstructed form of the gold standard, which the UK joined in April 1925. This chapter argues that the interwar gold standard encouraged beggar-my-neighbour deflation and after 1929 it became a vehicle for transmitting recession. In the UK the Depression was severe in absolute terms causing a massive increase in unemployment and poverty. But compared to other countries the UK Depression was relatively mild, reflecting the importance of national specific factors in both transmitting and ameliorating external shocks. The policy response to Depression was particularly important: those countries, such as the UK, that withdrew from the strictures of the gold standard early had the potential to implement expansionist policies that encouraged recovery and growth in the 1930s.