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.

The optimism within the government steadily receded. Some ministers began to grapple with the reality of the failure of British war strategy, while others remained in emphatic denial of their growing US economic problem. Although some within the government remained tempted by the possibility of American mediation, Montagu aimed to offer an alternative way forward, seeking to build new munitions factories. This would enable the Allies to continue the war even after a radical wind-down in their American purchasing. Lloyd George, however, stridently opposed any reductions in their US spending. He also abruptly became a vehement opponent of American mediation when he was shown misleading intelligence that seemed to reveal secret German-American collaboration against the British. Distrusting his colleagues to take appropriate action, Lloyd George moved to kill the possibility of American mediation with a dramatic newspaper interview. Lloyd George committed Britain to an indefinite war until they had landed a 'knock-out blow'. This was popular with Conservatives, but it left his Asquithian colleagues furious and the Americans bewildered and hurt. Grey attempted, with some success, to apply a salve to the wound inflicted on the Americans by publicly promising British support for a league of nations.

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.