British befuddlement grows as prices rise, 2 million go jobless

Britain is confused. Five hundred days after she took office, Prime Minister Margaret Thatcher faces a nation increasingly doubtful about her strict monetary policies and equally unsure of any alternatives.

She also faces a world watching the British experiment closely for an answer to one of its most brooding questions: Can a mature capitalist society in a recession flush out inflation without also washing away its industrial foundations?

Until midsummer, many here thought it could. But during the past month, a subtle but significant change of mood has become apparent. Since Parliament rose in August, three sets of routinely announced figures have given an anything-but-routine jolt to many Britons.

* Unemployment. August figures have broken two emotionally charged barriers: 8 percent of the workforce, or 2 million people, without jobs.

To unemployed laborers like William Hutchinson of hard-hit Newcastle-upon-Tyne, that could spell penury. On top of a scant redundancy (severence) lump-sum payment of $:200 ($480), he collects welfare payments of $: 32.14 ($77) a week -- about half his previous takehome pay. With four years to go until retirement age and no other jobs in sight, he looks forward at best to public service volunteer work cutting hedges.

To the government, unemployment costs an estimated $:2 billion ($4.8 billion) a year, going up by $:180 million ($432 million) for every 100,000 additional jobless. The waste of human resources and the collapse of once-viable businesses make politicians of all stripes shiver.

* Money supply. the government's budget in March called for a 7-11 percent limit to annual growth of the money supply, hoping to prevent inflationary price rises. But in August alone the money supply grew by 3 percent. Over the past year it has risen 18 percent. Treasury officials claim the figures suffered "distortion," due to changes in bank lending regulations. But observers are increasingly skeptical.

* The public sector borrowing requirement. The March budget called for an $: 8.5 billion ($20.4 billion) limit on government borrowing for the year. After only five months, three-quarters of that amount had already been borrowed -- proof, many say, that the government is overspending.

so far, Mrs. Thatcher has not flinched under these three blows. "It is only by maintaining monetary discipline that the improvement in inflation will be sustained," she reasserted Sept. 11.

"Getting inflation down is at the heart of our strategy. For if we fail there, we fail on every front," she added.

But the weather is changing around her.

Normally Conservative-leaning newspapers are taking increasingly peckish views of her ardent desire to corral the money supply by keeping the minimum lending rate (which resembles the prime rate in the United States) at a high 16 percent.

The Prestigious Confederation of British Industry, a traditional bastion of Conservative support, has given her some surprisingly tough warnings about the damage her policies are doing. Even Sir Michael Edwardes, chairman of BL (formerly British Leyland) and her favorite son among the nationalized industries, has publicly said that enough is enough.

Tory-voting industrialists contacted by the Monitor around the country are wavering -- torn between an instinctive support for her noninterventionist, free enterprise policies and a very real dismay at the numbers of firms being driven into bankruptcy. "I think Maggie Thatcher's got it right," said a factory manager in wales, "but possibly at the wrong time."

Even within her Cabinet, a significant group of ministers (said to include Foreign Secretary Lord Carrington and Employment secretary James Prior) are urging moderation.

Added to the predictable shrilling of disapproval from the opposition Labour Party (many of whose members liken the still-rising unemployment figures to those of the 1930s), these voices essentially ask one question: Has our suffering been worthwhile?

For those of Mrs. Thatcher's supporters who now say "probably not," the most unsettling result of the past month's figures is the fear that the government, for all its firebreathing faith, might be clinging to a set of economic laws that do not reflect reality. In other words, it might not know what it is doing. That view is hinted at by the highly regarded Financial Times newspaper, which noted that "the recent history of monetary growth is a mystery wrapped in an enigma."

But others retain their faith. Although manufacturing output since January is 5.3 percent lower than for the corresponding period in 1973, there are small signs of good news:

* Strong exports have kept Britain's international trade balance in the black for the fourth consecutive month.

* Inflation has crept down from an annual 16.9 percent in July to 16.3 percent in August.

* Pay settlements are being accepted by workers at levels below those recommended by their union leadership -- most recently, among Vauxhall auto workers and hospital staff.

How much longer can the government hold out? Pundits predict a drop in the interest rates of several points soon (almost certainly before the annual Conservative Party conference opens in Brighton Oct. 7). But such predictions are written off as pure speculation at Downing Street.

What many here sees as crisis of credibility will require some strong morale-boosting words at the conference. But as one longtime political commentator noted privately. "This kind of anxiety can't easily be removed by a political speech."