In 1914, Britain was the major international financial power, with the pound sterling as the world's main trading currency. According to Kathleen Burk, the important factors of that were the strength of the British economy itself, the size and the maturity of the British banking system, the bank of England and the wealth and capability of the City of London, established by its ability to finance trade worldwide. In August 1914, British declared war on Germany and her allies. No one was prepared for WWI (1914-1918), few people assumed what economic changes it would bring and how complex it would prove in terms of economic demand. .
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Before the war, British government only considered of the specific problems not general because almost one century that British never involved in war before WWI. British did not think that war would an effect on the foreign trade and the foreign exchanges. In August 1914 almost everyone expected that the war would be over quickly, including Herbert Asquith the prime minister. He adopted the slogan Business as Usual'. He wanted to convince the British people that the war could be fought without disturbing life in Britain. Initially most people expected a short war and saw no need to change normal patterns of life. This was fact that the government was reluctant to move away from the free market to run the war economy. This made a great failure. .
Picture of Herbert Asquith.
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The crisis for example shortage in labour and slow movement in prices especially in shells, was causing serious losses and was turned into political issues as the Great Shell Scandal'. This made the government began to take more and more control in production. The Munitions Act was to lead to much labour, however later it was a great extension of the Government's powers of economic control. It formed the beginning of a system of Government-directed production of the weapons of war, which quickly included Government-owned shell factories, the purchase and control of the supply and distribution of certain metals and chemicals, and the control of labour, the direct allocation of orders, the auditing and price control and the provision of capital for expansion.
