Image: Bank of England

Interest rates doubling, London Stock Exchange closing: How World War One nearly bankrupted Britain

A new Bank of England exhibition looks at the Great War's impact on the UK economy.

by Elizabeth Anderson
Last Updated: 09 Oct 2014

Britain may have just come out of the deepest recession in recent history, but there was a much more serious financial crisis 100 hundred years ago. To mark the centenary of the outbreak of the First World War, the Bank of England has created an exhibition which shows how the little-known story of how the City of London almost went into financial meltdown on the eve of World War One.

Bank of England, c.1917

During the summer of 1914, investors became increasingly nervous as the politicial situation in Europe became more uncertain. This loss of confidence deepened into panic at the end of July as armies mobilised and war became inevitable.

Crowds gathered outside the Bank of England in the last week of July, as fearful investors scrambled to exchange their paper money for gold (back then Britain was on the Gold Standard, meaning for every pound in circulation, there was a pound's worth of gold in the vaults of the Bank of England). The London Stock Exchange closed and lending by the banks began to dry up.

An extended bank holiday forced the markets to pause after several days of chaos and allowed banks to take stock. The notes in the prices book below show how normal routine was disrupted.

The left-hand page records attempts to meet demand for currency, such as shipping coin to the regions and issuing emergency £1 and 10 shilling notes to boost the money supply. The right-hand side, normally empty, forms a timeline of political events as Britain enters the war.

Curator Jennifer Adam explains: 'There are two pages for a whole month in July. Normally the right hand side is blank but these pages show how normal business just collapsed. There was an ultimatum from Austria to Serbia, which was rejected. That's when the events of the war began unfolding, creating uncertainty in the financial markets. As shown, the Bank's interest rate jumped from 4% to 8% overnight.'

The London Stock Exchange closed early on Friday 31 July and remained closed for five months. In a bid to contain the crisis, banks kept their doors shut for several days after the bank holiday in early August 1914.

By the time the banks reopened on 7 August the initial panic had subsided, but Britain was officially at war.

One of the first problems to overcome was an impending credit crisis. After war had been declared, banks were left holding large amounts of IOUs from overseas borrowers which were unlikely to be repaid. These pre-war IOUs were purchased by the Bank of England and stored in its vaults in what came to be known as the ‘cold storage’ scheme. With the burden of toxic debt lifted, the banks were able to start lending again.

The financial panic led to the failure of a handful of stock market traders and a London bank. But the cold storage scheme, led by then-Bank of England Governor Walter Cunliffe, successfully kick-started lending by the banks and restored confidence in challenging times.

King George V and Queen Mary printing the first nomination war bond in the Bank's printing department, c.1917. Image: Bank of England

The government borrowed immense sums of money in order to fund the war effort.

This included loans from allies such as the United States, but over the course of the war the government also borrowed billions of pounds directly from the British public through newly-created bonds. An extensive campaign appealed to members of the public – particularly those who did not join the armed forces – to invest in the War Loan as their patriotic duty.

Posters encouraged the public to invest in the War Loan as their patriotic duty, especially those who did not join the military forces. Image: Bank of England

The outbreak of war placed great pressure on Britain’s gold supply: the public tended to hoard gold sovereigns in times of uncertainty, but the government needed gold to finance the war effort.

On 7 August, just three days after war had been declared, H.M. Treasury began to issue £1 and 10 shilling notes as a way of supplementing the limited supply of gold coinage. The first notes were hurriedly produced: the lack of banknote paper available at such short notice meant they were printed on paper originally intended for postage stamps.

These emergency notes quickly became known as ‘Bradburys’, after the Secretary to the Treasury, Sir John Bradbury, whose signature they bore.

Hugh Carson Andrews joined the Bank in 1901. During the war he was a 3rd Class Clerk in the Drawing Office, where he remained to carry out vital – and secret – war work. He accompanied several shipments of gold from the Bank of England to Amsterdam, in order to support the Dutch Exchange, and to New York, to fund the expenses of war.

Absolute secrecy was essential because of the threat of German submarine attacks and the precious nature of the shipments. 

Andrews carried letters of introduction bearing samples of his signature, to prove his identity to the agents he met in Amsterdam and New York.

He spent the rest of his career at the Bank and retired in 1935, by which time he was Sub Agent of the Bank’s Plymouth Branch. No photographs of Andrews exist but pictured right is one of his missions.

Over the course of the war, the Bank’s staff expanded to cope with the administrative burden created by the War Loan.

By 1919, the number of women working at the Bank of England had risen to 2,463 out of a total of 4,000 staff, compared to 66 before the war. Women clerks were provided with lunch, tea, and even dinner if working late.

Women porters were given lighter duties than their male counterparts, but they still had to be fit and strong enough to carry out the work. Applicants had to pass a medical to qualify for the job. Neatness was essential for women porters, because their work involved carrying messages to other banks. They were given a special uniform [pictured right].

But there were strict rules of conduct, including an order against wearing patterned clothing. Gaiters protected the feet from rain during bad weather. The pink braid on the tri-corn hat matched the pink livery of existing male doorkeepers.

Image credit: Bank of England             


The United States Federal Reserve Bank and the Bank of England worked closely together to cope with the massive financial burden of the war. This telegram, sent from the Federal Reserve Bank to the Bank of England the day after the armistice, celebrates the end of the war. 

- Text and images courtesy of the Bank of England.

- The First World War and the Bank of England exhibition runs until March 2015. Find out more here.

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