Over the first year of the war, Britain moved from a position of financial power over the United States to a position of increasing economic dependency. Responsibility for managing this shift fell first to Chancellor David Lloyd George, who showed little interest in the Treasury's operations during the war, and then to Reginald McKenna, who became increasingly seized of the problem. American Colonel Edward House moved to try to mediate the war, taking a trip to Europe. Finding that it was still far too early to mediate the conflict, House set his sights much lower. He looked merely to convince the powers that, when it came time to end the war, the United States should serve as the necessary neutral clearing-house through which the negotiations would be completed. At the same time, British intelligence organization MI1(b) worked to solve the American diplomatic codebooks, succeeding not long after House returned to the United States.

Grey gave a great push to convince his colleagues to consult the French government about activating the House-Grey Memorandum, only to be outmanoeuvred. With this diplomatic alternative set aside, the military successfully pressured the government to assent to a major summer offensive on the Somme. The military also sought to replace the strategy agreed a few months earlier with an economic fantasy: the military was now looking to win the war with an offensive in 1917 instead of in 1916, but refused to accept that Britain would face serious financial problems in continuing the Allies' massive US supplies through a 1917 campaign. Despite fierce resistance within the Cabinet, the House of Commons forced the acceptance of the military's position. The British government suffered a financial scare when McKenna warned that their assets deployable in the United States faced exhaustion by autumn. McKenna was wrong about the timing: Britain had more assets than he thought, enough to last them into early 1917. But the scare resulted in a serious reconsideration of the House-Grey Memorandum when House and Wilson pushed for an autumn implementation of the agreement. The memorandum's proponents were unintentionally undermined by Wilson’s speech to the US League to Enforce Peace.

A sense of crisis emerged amidst growing anxieties over the Allied financial, shipping, and food situations. The British faced hard economic choices for the coming year, but the Cabinet remained divided and paralyzed. Lord Lansdowne finally put to paper the worries that had filled a number of ministers all year: the 'Lansdowne Memorandum' called for a consideration of a negotiated peace, finding a number of supporters within the Cabinet and sparking vigorous debate. Lloyd George rejected Lansdowne's position, determined to force the adoption of industrial conscription and to increase British spending in the United States. Lloyd George rejected the reality of Britain's increasingly fragile economic position even amidst a serious financial crisis. Plotting with Conservative leader Andrew Bonar Law and with Edward Carson, Lloyd George sought to eject Asquith and his supporters from the levers of power, but Asquith outmanoeuvred him, holding his government together with a series of compromises and isolating Lloyd George within the Cabinet. Lloyd George responded by launching a desperate gambit to remove Asquith's control over the war. When the dust settled, Lloyd George was on Downing Street.

Britain's great gamble began with the launch of the Somme Offensive. To extend their American assets, Asquith dislodged the spendthrift Lloyd George from the Ministry of Munitions by promoting him to War Secretary, replacing him with the more economy-minded Edwin Montagu. Startling talk of peace came from French President Raymond Poincaré, which British hardliners moved rapidly to bury. Otherwise, the question of American mediation only rumbled very quietly beneath the surface. British intelligence opened a new source of information with the discovery of the "Swedish Roundabout", unlocking the communications of the German Ambassador to the United States. The British military leadership continually reassured the government that the Somme Offensive was making great headway. As Romania moved to enter the war on the Allied side in August, the government was taken to unfamiliar heights of optimism: it finally seemed as if the Allies might be able to win the war on schedule.