You've got to remember that they were operating in an old Keynesian paradigm where they focused on controlling quantities not prices, and the belief was that export elasticities were low, meaning there was little to gain from devaluation. The most charitable interpretation using modern economics is that leaving a fixed exchange rate regime raises inflation expectations (why leave the fixed rate unless you're going to inflate) and this meant that to prevent inflation rising too far would require a more deflationary policy than if inflation expectations were lower.
Personally, having read most of the secondary sources, I think the driving argument was political, the treasury was in favour of the plan but the public would have been seen it as a failure, and it would have resulted in lower living standards (higher import prices) in the short term. Worth remembering that the Tories won only a slim majority in 1951 on fewer votes than Labour had got, and they had promised to keep many Labour reforms. There was the danger it would have lead to an "unnecessary" electoral defeat for the Tories in the same way protectionism did in 1906 and 1923.
It's an interesting what if though.