The Great Debate UK
-Mark Bolsom is the Head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist. The opinions expressed are his own.-
The onset of 2009 saw the pound well and truly on the back foot against both the dollar and euro, at one stage hitting a six-year low against the greenback (falling to $1.3751) and an all-time low versus the single currency. In one week in January, the pound fell 4.5 percent against the euro, 5.7 percent against the yen and 6 percent against the dollar.
The pound’s weakness at that stage was clearly a direct consequence of the credit crunch and resulting global economic slowdown. Nevertheless, as the both the government and the Bank of England opted for policies of aggressive fiscal and monetary stimulus, sterling recovered, to a degree, even as the economy slid into the deepest recession for generations. In response, the Bank of England took positive and decisive action, slashing interest rates to a record low of 0.5 pc and pumping 200 billion pounds into the economy through its asset purchasing scheme.
How successful this has been is debatable. House prices have stabilised and have been slowly rising. The threat of deflation also appears to have receded with November’s data showing inflation more or less in line with the Bank’s 2 percent target. Similarly unemployment has not risen by as much as had been feared. However, as 2009 draws to an end, the government has been forced to revise its own growth forecasts for 2009 downwards, now stating that by year end the UK economy will have contracted by 4.75%. Similarly, some commentators have argued that unemployment data is misleading. True, the number of claimants is still below expectations, but many employees have been forced to accept pay cuts and shorter working weeks.
A revisionist theory on the causes of the global financial crisis blames surplus countries like China, Japan and Germany as much as highly-leveraged, deregulated finance in the United States and Britain.
–Vincent Cable is Deputy Leader of Britain’s Liberal Democrats. He is a former economist who is also the party’s spokesman on economics and finance. The views expressed are his own. –
Most of Britain’s moments of high economic drama in the 20th century centred on sterling: the Gold Standard in the inter war period; the various balance of payments crises of 1949 and 1967; Black Monday and the ERM. It is perhaps understandable that commentators should reach for these folk memories and attach the word “crisis” to the current fall of sterling against the main trading currencies particularly the Euro. Understandable; but wrong.