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 aftermath of German-American diplomatic crisis over submarines, House conceived a new, more ambitious strategy of trying to use US power to end the war and prevent an Allied defeat. Although House initially struggled to find a receptive audience amongst the British leadership, anxiety within the British government was on the rise. Efforts to reconcile Britain's economic and military strategies settled on a plan to win the war with a great 1916 offensive – a strategy that provoked serious disquiet amongst a number of key British leaders. By February 1916, a number of British leaders, including Foreign Secretary Sir Edward Grey, encouraged House towards a still more ambitious conception of American mediation: not only would the United States play a key role in setting up the negotiations, but it would also chair them. House and Grey agreed the 'House-Grey Memorandum', in which House promised that the United States would guarantee a set of limited Allied war aims at a peace conference. All the while, British intelligence was decrypting House's telegrams and attempting to undermine his negotiations.