Sir Kingsley Wood, the Chancellor, gave this grim news today. Higher war output and other military preparations have far exceeded Treasury calculations. The current budget deficit is twice the size estimated eight months ago. MPs are now braced for drastic tax increases. Tax is meeting only one-quarter of all expenditure.

The 8,000 ton cargo ship SS POLITICIAN bound from Liverpool to Jamaica grounds off Eriskay in the Hebrides. The locals loot the ship of its cargo of 250,000 bottles of whisky, giving rise to Compton MacKenzie's book, "Whisky Galore". Later made into the classic Ealing comedy. (Marc James Small and Dave Shirlaw)

GERMANY: AP reports that no air raids have been aimed at Berlin since December 21st. The RAF seems to be concentrating on Bremen and Wilhelmshaven. The Nazis have described these as "more serious than any other English raids."

LIBYA: Led by 4th Armoured Brigade under Brigadier 'Blood' Caunter, with the 11th Hussars in the front, 7th Armoured Division strikes out across the Cyrenaica desert to cut the coast road to Benghazi, 150 miles away.

British armoured cars occupy Msus, and the forces then move toward Antelat.

Wavell telegrams to CIGS:

Information indicates that enemy is making hurried withdrawal westwards from Cyrene and possibly south from Benghazi.

What remains of 7 Armed Div. is advancing on Zt Msus and may reach there this evening. Tomorrow it will try to cut roads leading south from Benghazi. RAF is attacking retreating columns.

ERITREA:  The British forces begin to attack the 30,000 Italian troops in strong positions around Keren. In the first phase of the battle, which lasts until 7 February, the 11th Indian Brigade manages to take Cameron Ridge but is thrown back from other positions by Italian counterattacks. 
 

TERRITORY OF HAWAII: The Search for the unidentified submarine off Oahu, begun yesterday, continues. After destroyers USS Dale (DD-353) and USS Hull (DD-350) return to Pearl Harbor, destroyers USS Flusser (DD-368) and USS Drayton (DD-366) join USS Lamson (DD-367) in the hunt. Ultimately, however, the search is called off. 

CANADA:

U.S.A.: An editorial in the Chicago Tribune reports the leaked contents of a report from the Secretary of War which states that "...the American army today has not even one combat airplane with the gun power, the self-sealing fuel tank, and the armour protection for the pilot which the fighting in Europe has shown to be necessary."

The Salvation Army, the YMCA and YWCA, the National Catholic Community Services, the National Travelers Aid Association and the National Jewish Welfare Board pooled their resources, at the request of U.S. President Franklin D. Roosevelt, to form a new organization. The United Service Organizations (USO) was created to provide unduplicated recreational services to members of the U.S. Armed Forces who were on pass or leave. 
 

The American United Press News Agency reports:

The US Army tank arm has begun to carry out an enormous expansion program based on plans which have been developed, continuously improved and modernised since 1928. The army has always realised the striking power of rapid-moving tanks but, armoured officers explain, considered it wiser to avoid spending billions of dollars for the production of tanks that would then have to be stored in giant depots until the day they were mobilised, and that might by then have become outdated. The army trusted in geographical position of the USA to give it time to assemble, whereas the European nations are compelled to keep their armies and arms always ready to deploy.

PUERTO RICO:   Fleet Landing Exercise (FLEX) No. 7 begins in the Culebra-Vieques area, with all available ships of the Atlantic Fleet and elements of the 1st Marine Division and the U.S. Army's 1st Division, to train "Army and Navy Forces in the amphibious operations incident to a Joint Overseas Expedition." Unlike FLEX No. 6 in 1940, bona fide transports are available for, and participate in, the manoeuvres. 

ATLANTIC OCEAN: