For a time, relations between the UK and Egypt stabilized. However, the signing of the Baghdad Pact in 1955 was viewed by Nasser as a British attempt to redirect attention away from Egypt towards Iraq as the center of power in the middle east. Nasser responded by turning to Czechoslovakia for a major arms purchase, thereby demonstrating that British military support was no longer needed. This alarmed the US, but they were in the process of building their own support in the region through efforts in Saudi Arabia. The Saudis were, in turn, long-time rivals of the Hashemites, and were opposed to the UK's cordial relations with them. Supporting the UK in Egypt would potentially anger the Saudis, so the US stayed clear of the conflict.
Matters came to a head in May, when Nasser officially recognized the People's Republic of China. The US was angered by this move, and withdrew financial support for construction of the Aswan Dam, a move that was happily followed by the UK. Nasser, in turn, seized the Suez Canal. The UK arranged a three-way agreement with France and Israel to return to the canal to European control, by having Israel attack Egypt at which point France and the UK would enter the conflict ostensibly to stop the Israeli advance. Throughout, the UK attempted to get the US to intervene, stating that an Israeli invasion would surely be forthcoming. The US continued to refuse to get involved. Nevertheless, everyone involved expected the US to support their actions once they were underway.
The British-French portion of the invasion started on 3 November 1956. The actions could not have been more poorly timed. The US was attempting to deal with the near-simultaneous Soviet clamp-down on the Hungarian revolution that started the day before, and could not criticize the Soviet Union's invasion while its own allies were in the midst of invading another country. At the same time, the US was interested in continuing to develop its own presence in the middle east, while appearing to disown the former colonial powers in favor of independents.
U.S. President Dwight D. Eisenhower quickly led a series of actions that led to the almost immediate withdrawal of UK and French forces. In particular, he threatened to dump the U.S. holdings of British Pounds, which would precipitate a collapse of the British currency. At the same time, they led a series of motions in the United Nations to force the belligerents to withdraw. UK-US relations were incredibly strained as a result.
Anthony Eden's health failed due to the stress surrounding the fiasco, and while he was attempting to recover, Harold Macmillan took power. The new administration made it a point to attempt to repair relations with the US.
The UK had attempted to address this problem with the introduction of the Blue Steel stand-off missile. Blue Steel's 150 mile range allowed the bombers to remain outside the defenses around their targets and attack with relative impunity, as long as they could approach along missile-free routes. As the number of missile sites increased, and newer generations of Soviet interceptors were introduced with much longer range, Blue Steel became obsolete even before it entered service. Work on a dramatically improved Blue Steel II was undertaken with greater range and speed, but even the original model was greatly delayed and placed the entire deterrent at risk.
At the same time, development of the Blue Streak IRBM started. Blue Streak's ballistic profile made it essentially immune to interception, and reduced the need for new weapons on the V-bombers, or the bomber force at all. But like Blue Steel, Blue Streak was running into serious development problems. Additionally, the small land mass of the UK made hiding the missiles a practical impossibility, and the relative proximity to the USSR meant they could be attacked by Soviet bombers.
Although they were aware of the disturbing trend that they were increasingly relying on US weapons, when the AGM-48 Skybolt system started development in the U.S. in 1960, the UK saw this as a godsend. The Skybolt was dramatically better than any of their own weapon designs; it had a 1,000 nautical mile range that was far better than even Blue Steel II, used a ballistic profile like Blue Streak that was equally immune to interception, and was bomber-based to allow it mobility and survivability in the case of an attempted first-strike by the Soviets. By concentrating their defenses like the Bloodhound missile at their airbases, they could protect their striking force and deterrent at the same time.
Macmillan met with Eisenhower in May 1960, and arranged an agreement to purchase 144 Skybolts. They would be equipped with a UK-built version of the Skybolt's W59 warhead, who's design would also be turned over to the UK. As a quid-pro-quo, Macmillan agreed to allow US Polaris submarines to use UK bases for support and refurbishment, although this was unofficial. Skybolt entered testing in 1962, initially with a string of failures.
There was a real concern that a situation like the Suez Crisis might repeat itself, one that would once again incite a response from the Soviets. If the UK deterrent were not considered credible, an attack might follow that would require a US response. They saw their UK nuclear force as a potential target that could draw the US into a war it didn't want. They developed a plan to force the UK into their "Multilateral Force" concept, a dual-key arrangement that would only allow launch if both parties agreed, thereby reducing or eliminating this possibility. The US also feared that other countries would want to develop their own deterrent forces, leading to a proliferation problem even among their own allies. If a deterrent was being provided by a larger international force, the need for individual forces would be reduced.
Technically, the US simply no longer needed Skybolt as improved silo-based missiles and submarine-launched ballistic missiles (SLBMs) made their counterforce largely invulnerable anyway. The SLBM's offered all of the advantages of air-basing, but allowed for much greater areas of movement and loiter times of months instead of hours. The British, on the other hand, had cancelled all other projects to concentrate fully on Skybolt. This meant that there were few advantages in continuing Skybolt for the US, but at the same time its cancellation would be an immensely powerful political tool for bringing the UK into their Multilateral Force. However, they failed to consider what counteractions the UK might take.
In late November 1962 the US first broached the topic of potentially canceling Skybolt. McNamara visited London in early December with the same message. These discussions were reported in the House of Commons by the Minister of Defence, Peter Thorneycroft, leading to a storm of protest. Thorneycroft pointed out that the first five tests had all been failures and this was the reason for the US's concerns, but Air Commodore Arthur Vere Harvey quickly pointed out that the Polaris had suffered 13 failures in its development, and that was what was being offered as a potential alternative. He went on to state "...that some of us on this side, who want to see Britain retain a nuclear deterrent, are highly suspicious of some of the American motives... and say that the British people are tired of being pushed around?" Jo Grimond noted "Does not this mark the absolute failure of the policy of the independent deterrent? Is it not the case that everybody else in the world knew this, except the Conservative Party in this country?"
The next day, during the opening presentations, Macmillan outlined the UK's contributions to the development of the nuclear bomb, and stated in no uncertain terms that the UK would continue to have a nuclear force, no matter what the US did to try to stop them. If this were to occur, the UK's force would become entirely independent, precisely the problem that so worried McNamara.
Over the next few days a new plan was hammered out that saw the UK purchase the Polaris SLBM, but equipped with British warheads that lacked the dual-key system. The UK would thus retain its independent deterrent force, although its control passed from the Royal Air Force largely to the Royal Navy. The Polaris, a much better weapon system for the UK's needs, was a major "scoop" and has been referred to as “almost the bargain of the century” The RAF kept a tactical nuclear capability with the WE.177 which armed V-bombers, and later the Panavia Tornado force.
The original US policy of attempting to force the UK into their Multilateral Force proved to be a failure in light of the Polaris decision. Kennedy, stung by the entire issue, commissioned a detailed report by Richard Neustadt on the events and what lessons could be learned from them. Jacqueline Kennedy Onassis recalled him reading the initial report and commenting that "If you want to know what my life is like, read this." The report was later declassified in the 1990s and published as Report to JFK: The Skybolt Crisis in Perspective