Britain's manufacturing base had long been declining in the face of competition from America and Germany. Many Royal Commissions and committees observed the obsolescent working practices and seriously deficient technical education in the late nineteenth and early twentieth centuries.

In 1941 this all came to a head when the British economy could not manufacture the armaments it needed for the war effort nor could it afford to pay to import them from America. In effect Britain was nearing bankruptcy. Therefore the Roosevelt administration agreed to Lend-Lease and the rest of Britain's war effort was dependent upon it.

The prospect of a British economic recovery after the war was not good:

First, external disinvestment: in the period from September 1939 to June 1945, this added up to a total of £4,198 millions. Of this total, £1,118 millions represented the sale of capital assets, £2,879 millions the increase in external debt and £152 millions the reduction in gold and dollar reserves.

Next, shipping: after allowing for the return of ships belonging to other countries, the merchant shipping fleet of the United Kingdom and Colonies, which had been so valuable a source of foreign exchange, was about thirty percent smaller at the end of June 1945 than it had been on the outbreak of war.

Next, exports: during the first nine months of 1945, British exports had risen above the low level of 1944; but they were still not much more than forty percent by volume of the 1938 level.

Last, the military aftermath: it was clear that the costs of war would not cease to accumulate now that the Japanese had surrendered. The aftermath would involve the Government in expenditure abroad which, although lower than in wartime, would be far higher than before the war. Wartime bills would be presented in arrears; more important still, there would be the costs of occupation and policing.

When the British negotiators in Washington looked forward to 1946, therefore, they foresaw a huge deficit in the United Kingdom's balance of payments...the estimate, the precariousness of which was often stressed, was that the deficit in the balance of payments in 1946 might be £750 millions even with a very austere import programme. The years after 1946 were of course even more uncertain. The hypothesis then held was that the adverse balance would diminish until equilibrium was reached, possibly in 1951. But by that time the cumulative adverse balance might be £1,250 millions or even higher.

Added to this, Britain in 1945 had nearly 45% of its workforce in the armed forces and munitions industries. Only 2% of the workforce were producing exports and less than 8% were providing and maintaining the nation's capital equipment.

Britain received more Marshall Aid than any other country but used this money to maintain a world power role with military bases and their attendant armaments across the globe rather than cut defence expenditure and invest in structural reforms of the British economy. A much expanded welfare state also pocketed a lot of the money.