Britain's battered economy

When the engagement of Prince Charles to Lady Diana Spencer was announced to the House of Commons by Prime Minister Margaret Thatcher in February, the wooden benches echoed with approval -- except for the bench on which the Labour member for Fife Central sat.

Willie Hamilton, that indefatigable critic of the monarchy, jumped to his feet to charge that news of the engagement had been timed to coincide with the unemployment figures for that month: 2,463,294 -- the worst since World War II.

He even felt the government and Buckingham Palace had conspired to distract Britain's attention from the dismal state of the economy.

Nonetheless, the wedding is doubly welcome this summer precisely because it does, in effect, lend color and spectacle to a public scene over which storm clouds still hang low. The happiness of the occasion is welcome relief from the grimness of the economic headlines.

From the depths of an armchair in Whitehall, a senior government official observed that this was an especially difficult moment for the Thatcher government's battle against inflation.

Now in their third year of office, Conservative ministers are beginning to realize that the next election (near the end of 1983) could be upon them before they are out of the present long recession.

That spells political, as well as economic, bad news for Prime Minister Thatcher.

"We are now banging along the bottom of the recession," the government officials said. "We think the worst of the recession is over. The decline has stopped. But we see no signs of an early upturn, really. And unemployment looks like it could go to 3 million before it starts to fall."

The unemployment figure is, in fact, a crucial one."

Mrs. Thatcher can fairly claim she has lowered the rate of inflation as she promised. Today it is running at just over 11 percent, a dramatic drop from even a few years ago.

But unemployment is now even worse than the figure Mr. Hamilton complained so loudly about. It is over 2.5 million. It is going up more slowly than before, but it is still going up. The Conservative nightmare is that political fallout, such as the Liverpool-to-London March For Jobs in May, will multiply under the skillful management of the Trades Union Congress.

This, the nightmare goes, could help Tony Benn oust Michael Foot as leader of the Labour Party and seriously endanger, or even defeat, the Conservatives in 1983.

Few economic forecasters see any early hope for improvement. Of five major forecasts just released, only two (the London Business School's Center for Economic Forecasting, and the Liverpool University model -- both using a monetarist approach) see a fall next year. Neither see a drop below 2 million.

Keynesian analysts see only clouds ahead as well as behind. They (stockbrokers Philips Andrew and James Capel, and the National Institute of Economic and Social Research) see unemployment going over 3 million in 1983. The stockbrokers see inflation starting to rise again. The institute agrees but sees inflation's rise at a more gradual rate.

The government view is that Britain was hit extremely hard both by world recession and rising oil prices that are now more than three times higher than three years ago. British wage settlements were averaging more than 14 percent a year before Mrs. Thatcher came in, but productivity was rising by only about 1 percent a year.

Equipment was old, union practices were restrictive. More than 300,000 jobs have been lost in steel, shipbuilding, and the automobile industry in the last two years. Despite its own North Sea oil revenues, Britain found itself priced out of international markets by high salaries, high costs, and low productivity.

he government has steadily raised indirect taxes to get back some of the money consumers have made. This has reduced Mrs. Thatcher's political popularity, especially in Labour-dominated northern England, Scotland, and Wales.

Yet the government has also been in the embarrassing position of having to prop up its ailing nationalized industries, such as BL cars, steel, British Rail , British Telecom, and others. It has failed to reduce public borrowing. Even North Sea oil revenues are less than the rosiest forecasts of three years ago.

Moreover, at this writing, the pound sterling has been driven down more than 20 percent against the dollar this year alone. It had stayed high against other European currencies, but lately has shown weakness there. Its status of being a petrocurrency was undermined when the price of British oil came down $2 a barrel in line with OPEC strategy to overcome a world oil glut. High US interest rates also hurt the British pound.

The run on sterling carries two dangers.

1. That exporters here, made lean and more efficient when the pound was high, may relax now that their exports are cheaper.

2. That unions may try to reinstate high wage claims to obtain their share of the shortterm profits.

Wage settlements have been low lately. The government has its own limit of 7 percent for public employees. Mrs. Thatcher wants this to continue. Her priority remains fighting inflation.

The government appears determined to soldier on, to lower inflation even further, to exhort industry to keep streamlining itself and coming up with new ideas and new technology, and to cope as best it can with high jobless rates.

So far the political impact of unemployment has been remarkably low. Only a half- million or so workers have been out of a job for a year or more: Others move in and out of jobs.

But many youngsters leaving school this summer, the summer of the royal wedding, will have no jobs to go to. Tony Benn's socialist siren song has by no means ended.