ERM and the Pound

The big news recently is the continued depreciation in the value of the Pound. It’s bad news for firms importing raw materials from Europe, tourists on the continent and UK citizens living in Euroland, but, it will be of some help to our beleagured exporters.

From an economic perspective, the fall in the pound is not so problematic; but, it does tend to reinforce the rather dismal view markets have about the state of the UK economy at the moment. And it is becoming another factor weighing down on UK confidence. So far, the government have been able to step back and say, the weaker pound is fine, it will help our exporters no need to worry. And so far, that is probably the right approach.

It is perhaps appropriate to remember the last recession, when a large factor in causing it was trying to artificially keep the pound high. see: Exchange Rate Mechanism