Journalists like to use certain words. A clumsy political mistake, in news-speak, is a “gaffe”. An eye-catching opinion poll is “rogue”. A currency that goes up and down a lot “whipsaws”. Well, sterling has certainly whipsawed lately, after successive gaffes and a series of rogue polls.
The pound remains more than 10pc down against the dollar since last June’s EU referendum. It’s up almost 5pc, though, since the start of 2017 – and rallied in mid-April, to a six-month high, after Theresa May called a snap election. Investors bought sterling on the hope an improvement on the Tories’ 17-seat Commons majority would strength the Prime Minister’s hand during the Brexit negotiations.
The pound has had a slightly less volatile week. While dipping back below $1.20 on Tuesday, sterling has recovered to just under $1.23 at the time of writing. Despite the rally, the UK currency is still around 5pc down on its dollar value before early October’s Conservative Party conference – where Prime Minister Theresa May hinted she would opt for a “hard Brexit” settlement, one ruling out “membership of the single market” and prioritizing stricter immigration controls.
This fall in the pound has been sparked, as opposed to caused, by these early political skirmishes linked to the UK’s exit from the European Union. There are solid, fundamental reasons, in other words, beyond Brexit, why the pound needed to come down For starters, the UK has the largest current account deficit in the G7 – among the biggest in our peacetime history. Our annual budget deficit, despite years of “austerity”, also remains extremely large.
A tumultuous week for the pound. And there could be more to come. Sterling, at the time of writing, is below $1.24 – down from $1.29 last weekend. The markets are properly spooked.
This latest currency fall was sparked early last week, when Prime Minister Theresa May signaled her preference for “hard Brexit”. But then the pound plunged more. Friday’s “flash crash” – which saw sterling touch $1.18, before recovering – followed warnings from French President Hollande that Britain would “pay” for leaving the European Union. That apparently triggered a wave of automatic, computerized sell-offs.
So, the “smart money” was wrong. Ahead of last Thursday’s referendum, it really did seem that the Remain camp had it in the bag. As the big day approached, successive opinion polls suggested, ever more decisively, that the UK would opt to stay in the European Union.
As campaigning reached a crescendo, on-line prediction markets, showing the weight of money punters had bet on either side, became emphatic – pointing to an 80pc-plus probability we’d stay in. With “decided” voters mostly showing Remain just ahead, and most “undecided” also seen as “more likely to stay with what they know”, practically the entire political and media class agreed that, while it might be close, the UK electorate would reject Leave.
After writing a weekly economics column in this newspaper for a decade or so, along with a fair few elsewhere, I can now finally say I’ve made it. Why? Because, as I only lately discovered, some paragraphs from one of my Sunday Telegraph offerings appeared in a recent economics A-level examination.
“The UK is locked in the most feeble economic recovery in our history,” this column argued back in mid-2013. “Real wages continue to decline … and there’s been little sign of any ‘rebalancing’ away from consumption and towards exports”. Having read this quotation on their exam paper, along with a few more of my choice words, A-level candidates were then asked to “evaluate Mr Halligan’s analysis”, providing evidence to support their views.