from an economist Britain's balance of payments position deteriorated in the third quarter of last year ~ the deficit increasing to over £236 million. This compared with a deficit of only £19 million in the second quarter and £98 million in the first, The overall deficit for the three quarters, £353 million, however, was a big improvement on the position in 1964. In that year the deficit for the first nine months amounted to £561 million, Seasonal factors account for much of the setback in June-September, but the Labour Government must be worried about them nevertheless. On current account seasonal factors accounted for a change of no less than £130 million between the second and third quarters. The main cause of the large deficit was the sharp increase in the capital outflow which, after having fallen to £11 million in the second quarter, rose to no less than £108 million between July and September, Here, special factors were at work. Official bodies in other sterling area countries sold some £27 million of U.K. securities, Though the proceeds were reinvested in short-term U.K. assets and thus there were no actual withdrawals of funds from this country, these transactions still show up as an outflow in balance of payments. Furthermore, overseas investments by British oil companics rose sharply, while direct investment by foreign companies in this country fell back after having been exceptionally high in the second quarter (a certain amount of this may be due to steps taken by the American Government to soive its balance of payments problem by disencouraging U.S. firms to invest overseas )e
It now looks unlikely that Mr. Callaghan's target of halving the deficit in 1965 can be achieved, On the other hand - and making allowances for the fact that the U.K. is not making the repayments of nearly £70 million under the North American loans this year - there is still a chance that the margin of failure will not be very big. Having saiiall this, one can see that the "recovery" of the British economy is on very parlous basis. Mr. Wilson and his team will be subject to tremendous pressures in 1966 to impose the incomes policy on the British workin; class,