With the Asquithian Liberals ejected from office, Lloyd George's new government remained in denial over the severity of Britain's economic problem in the United States. Bonar Law's new responsibilities as Chancellor alerted him to the seriousness of the crisis, but he took no meaningful action. German and American moves for peace came soon after Lloyd George's ascent to power, but the new government simply sought to manoeuvre around them. British intelligence continued to serve Lloyd George poorly, sending him decrypts that again misled Lloyd George into believing that Germany and the United States were secretly collaborating. British intelligence also decrypted the infamous Zimmermann Telegram, but decided not to share it with the government. Arthur Balfour, the new Foreign Secretary, remained extremely anxious about Britain's economic position. He used a British intelligence officer in the United States, William Wiseman, to quietly keep alive the prospect of American mediation with House. House sought new negotiations between Germany and Britain via Wiseman and the German Ambassador. Germany announced a declaration of unrestricted submarine warfare, ending House's negotiations.

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.

In the early years of the Great War, as generals waged such visible carnage that claimed so many young lives, there was another side of the conflict, invisible not only to the public of the day but to history for more than a century. Immense copper cables traversing the Atlantic carried confidential messages destined for the American diplomatic outposts in the capitals of Europe – messages sent in the service of a noble goal: bringing the slaughter to a halt. Only a short walk from the residence of the US Ambassador in London, a nondescript building on Cork Street would house a secret team of British cryptanalysts. A year into the war, that team began working to solve US codes and soon was steadily deciphering American transmissions. As the codebreakers worked, an uneasy political truce hung over the city. Beneath the surface, tension seethed amongst government ministers and unelected military and naval officials, who possessed vastly differing views of how the war was to be won – or if it remained winnable at all.

Wilson broke off diplomatic relations with Germany but began new peace efforts via Austria-Hungary. The new Austro-Hungarian Emperor Karl shared Wilson's desperation to open general peace negotiations. With the British down to their final tranche of American assets and yet refusing to cut their American spending, the Allies steadily grew more vulnerable to US pressure. Wilson pursued peace possibilities with Austria-Hungary, beginning indirect negotiations with the British leadership, who thought that an Austro-Hungarian separate peace might be on offer. These indirect negotiations led Lloyd George to make a reckless confession to the US Ambassador to London, Walter Page: Lloyd George confessed that he had secretly been reading Page's instructions from Washington. Page magnanimously kept this confession a secret. At the same time, British intelligence manouevred to make the best use of the Zimmermann Telegram. When Wilson received it, it had a dramatic effect on his diplomacy. Before, Wilson had consistently moved speedily and creatively to promote negotiations between London and Vienna. Afterward, he took a very hard line towards the Austro-Hungarians and broke off these peace negotiations despite large Austro-Hungarian concessions. Soon thereafter, the United States joined the First World War and provided massive financing to the Allies.

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.

The Americans thus took their first steps into the global spotlight, the world’s largest economy commencing its transformation into the world’s dominant power. This transformation would require another few decades and a second world war to complete. The twentieth century, however, would belong to the United States. Some European leaders sensed something of what was to come, and saw the Great War as standing on an American pivot. No matter the ocean in between, the outcome of the war could as readily be decided in Washington as on the various European fronts. Others, blinded by nationalism and arrogance, refused to see what was happening before their eyes.

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.