A falling pound creates a list of rather serious problems for ordinary working people – a higher cost of living and higher rates of unemployment to name only two. It is not the end of the world, but we have to think long and hard about the future.
Since England’s decision to leave the European Union the pound has fallen sharply against all of the currencies of its most significant trade partners, dropping to its lowest rate against the US dollar for more than thirty years. Measured against all the trading indicators the picture is emerging that the value of sterling has come down to its lowest ever recorded level. In the short term this is bad news. Yes, a weak currency is good for exports but the UK has a trade deficit – meaning that, as a nation, we import more than we export. Under normal conditions, in the medium to longer term, we can expect the rate of currency to fluctuate and so recover, but these are not ordinary times.
Sterling has taken a pounding because of the uncertainty caused by Brexit, and – as there will be no clarity on Britain’s trading future for at least another two years – the low can be expected with some degree of certainty to be the new normal. What does this mean for the ordinary working family? Unless you happen to be an exporter, which most of us are not, money is about to get tighter. Take a look in the press and see how much of what we buy is produced abroad. This will give you an idea of the scale of the problem. If your household buys, for example, €100 worth of European goods per week that €100 is now worth about ten percent more in sterling.
Usually when prices rise we spend less, and a drop in spending has a knock on effect on employment. Demand for shipping and services falls and unemployment rises – resulting in a further fall in spending. It’s all a mechanism, and at the present moment it is beginning to readjust to the new rules. The only way out of this is for the pound to gain in value, but this is not looking as though it is likely to happen any time soon. Actually the opposite is more likely; the period of the Brexit negotiations after Article 50 is triggered will produce only more uncertainty.
Is there anything we can do about this? Not really. In Scotland we can opt to remain in the EU by gaining independence, but short of this we are very much tied to the economic realities of the UK. Sadly the state is not too likely to intervene. The state’s priority is its own survival and already it is hatching plans to keep the City of London in the single market; giving a boon to the financialisation of London and further isolating the country’s wealth from the people. Conservatives are, by economic and political nature, social Darwinians; seeing poverty is the failing of the poor. Now that the damage is done, it is time that we start working on strategies to limit the harm that this will do.
How a weak sterling will hit UK households