On This Day: PM Harold Wilson makes ‘pound in your pocket’ gaffe as Sterling is devalued

November 18: Prime Minister Harold Wilson was forced to devalue the pound on this day in 1967 – sparking one of the greatest political humiliations in British history.

The Labour premier then made the near-fatal gaffe of falsely claiming the 14.3% reduction in Sterling’s worth would not diminish the “pound in your pocket”.

The bombshell – announced at 9.30pm on Saturday after all Sunday newspapers had published their first edition – followed three years of defending the ailing currency.

A British Pathé newsreel shows the empty London Stock Exchange on a “black, moneyless” Monday after trading was suspended.

Instead, panicked City financiers – a notably all-male crowd that included some in bowler hats - gathered in the open air in Throgmorton Street to discuss the news.

The devaluation triggered the resignation of Chancellor James Callaghan and trepidation as far away as New Zealand.

Yet with a mixture of deft handling and a lot of luck Wilson managed to hold on to his job – although, despite rising polls, he narrowly lost the 1970 general election.

At the root of the crisis was Britain’s ailing economy along with heavy debts and an £800million budget deficit wracked up by the previous 13-year Tory administration.

The UK also suffered an increasing trade deficit – meaning its imports outstripped exports – which was hugely worrying for a supposed manufacturing giant.

In those days, the pound - along with most other currencies – was not freely floated as it does now with its value changing on a daily basis.

Instead, there was a fixed exchange rate, which the Bank of England helped to maintain by agreeing to buy foreign money at a set rate.

But fears that the pound was valued too high and that the economy was in decline, led international investors to begin ditching Sterling in favour of other currencies.

And, by November 1967, the Bank warned it could no continue to shore up the pound for much longer because its reserves of gold and U.S. dollars were running low.

So the Cabinet began secretly debating whether to finally devalue the currency – as many experts had already suggested when Labour was elected in 1964.

Among the positive reasons to reduce the exchange rate was that it would stimulate exports by making British goods cheaper to foreign buyers.

In doing so, it was hoped that it would boost the economy and increase tax receipts by increasing the profits of manufacturers and reducing unemployment

But Callaghan and deputy PM George Brown argued against devaluation – saying it would badly hurt consumer confidence and permanently diminish Britain’s prestige.

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Wilson also resisted – and even considered blackmailing the Americans into handing over cheap loans by threatening to pull UK troops out of places such as Germany.

But, in the end, the pipe-smoking premier decided to go ahead with devaluation – and reduced the pound’s exchange rate with the dollar from $2.80 to $2.40.In a radio and television broadcast this evening, he claimed devaluation would enable Britain to “break out from the straitjacket” of boom and bust economics.

He said: “From now the pound abroad is worth 14% or so less in terms of other currencies.

“It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.

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“What it does mean is that we shall now be able to sell more goods abroad on a competitive basis.”

But things went from bad to worse for Wilson.

He was able to allay some of the immediate political fallout by quickly persuading Callaghan to return to the Cabinet as Home Secretary.

But within days French President Charles de Gaulle had vetoed for a second time Britain joining the European Economic Community, which both Labour and Conservative politicians then thought would help cure the economic malaise.

And the following March, with the economy failing to pick up enough, drastic cuts were made to the budget.

At the same time, devaluation had thoroughly discredited the pound as a reserve currency – after humiliatingly losing its place to Germany's Deutche Mark.

A host of former dominions and colonies – such as Australia and Bermuda – stopped pegging their currencies to the pound.

And countries like New Zealand, which initially devalued out of sympathy, would also soon end their historic association with the British economy.