It is worth taking a step back to the early 1900s to better understand the state of the British economy on the eve of World War II.
The Rise of New Competitors.
The Industrial Revolution gave the British Empire a huge advantage over other Western nations in the development of manufacturing. However, in the second half of the 19th century, these countries also embarked on the path of industrialization, and two of them managed to do so at an accelerated pace, overtaking Great Britain itself around 1900: according to Cameron and Neal (2005), by 1890 the United States had become the world's leading industrial power, and two decades later, Germany had also taken the lead in Europe.
According to Allen (2011), paradoxically, it was the progress made by British industry in its attempt to further strengthen its competitiveness that led to the spread of new methods of industrial production outside the United Kingdom. In his view, one of the reasons why the Industrial Revolution took place in Britain and not elsewhere was that the mechanization of industrial processes was much more convenient there than elsewhere, due to the high cost of labor and the low price of coal. However, as technological improvements over the decades led to significant improvements in the efficiency of steam engines, their introduction became profitable even where wages were lower or coal less cheap.