What a ridiculous argument by James Bartholomew in the Daily Express today about Labour governments and the pound. He conveniently ignores that the last major devaluation, following the pound's ejection from the ERM, was under a Conservative government. Technically, the 1931 devaluation was under the National Government but who is splitting hairs? Why let the facts get in the way of a neat and partisan-laden account of the history of sterling?
The notion that the pound could have avoided devaluation throughout the twentieth century is preposterous given that Britain lost an empire, there were massive shifts in economic and political power, there were two costly and devastating world wars that Britain paid an enormous cost for, and a collective failure to maintain Britain's position as a manufacturing force.
So devaluations had to happen despite the desperate attempts of successive governments to avoid them. Unsurprisingly, despite trying to avoid a devaluation of sterling in 1947, it inevitably happened given a war ravaged economy and onerous debt repayments (thank you America.) The post-war economic model was unravelling by the end of the 1960s and would continue to do so until the IMF stepped in and monetarism was adopted in 1976.
There were 'devaluations' in the 1980s under Thatcher too but the reality is that they are not noticed when currency is free floating as opposed to when a currency is linked to gold, the dollar, or a basket of currencies as in the ERM. It makes for dramatic television when sterling is ejected from a pegged or managed exchange rate system as David Cameron discovered when he was stood behind Norman Lamont as the then Chancellor announced the pound's removal from the ERM in 1992. But it only happens under Labour Governments remember......
Where there were economic failures, and there were, by and large they were shared by both parties. The recent decline in sterling is completely to be expected given that our economy is exposed to the type of financial crisis that we are facing- a legacy of the economic structure of the last thirty years not just the last ten. Differential interest rates- lower in the UK than the euro-zone- and the movement of the euro towards reserve currency status further fuel the change in the exchange rate.
Interestingly, the movement of sterling did not commence at the time of the Chancellor's statement when the level of borrowing was announced- in fact sterling rose in value for a few days. It was certainly impacted, however, by the change in interest rates on December 4th as would be expected. That is not to argue against that reduction of interest rates; it just explains much of the recent movement of the currency. Public borrowing impacts the exchange rate if it is seen as inflationary. That is not the overriding concern with the UK economy currently.
James Bartholomew's argument that currency falls are because 'Labour Governments spend too much' comes nowhere near explaining the historical movements of sterling. Any cursory and non-tendentious reading of economic history shows that.