Op-Ed: Sterling’s Nose Dive Towards Austerity – Some Very Unpleasant Economics


Paddington area, London. July 2022.Image by Tim Sandle

The inevitable decline of the British pound took a while. This is a crash-and-burn scenario, to some extent. Some pundits are amazed that it took so long after Brexit for the wheels to fall off. The British economy is in tatters. It was once the financial heart of Europe. Today it is Europe’s financial black hole.

The pound is near parity with the US dollar, which was worth less than half a pound 50 years ago. This is certainly NOT good news for the UK.

There are a lot of savings involved, as follows:

  • The UK imports a lot of goods and food. These imports will become more expensive, hitting a struggling, if not drowning, UK domestic economy.
  • The Johnson government borrowed a lot of money in recent years, causing many capital outflows. The interest on these loans will increase and the pound is now worth much less against the US dollar. This is a loss which is added to the other losses, and which amounts to billions.
  • One of the reasons for the decline in the pound was the tax cuts proposed by the new government. This tax policy is considered a very bad decision, given a declining economy and a difficult tax environment. To raise funds to finance the expenditure, the British government should issue bonds. Add in existing debt, and it’s a pretty uncertain decision at best.
  • The Bank of England will have to raise its interest rates anyway. It would be a good defensive move in most cases, but not in a rising global rate environment. The net result would be to minimize the benefits of the rate hike.

Much less impressive – Some people might well have shorted the pound before the policy was announced. This means entering into a contract to buy the pound at a given lower price on a future date. So if you committed to buy books at $0.90 and the price is higher, you earn X cents on the dollar, with the dollar buying more UK pounds.

This approach of “selling England by the pound” is quite common, perfectly legal and probably unethical. Never mind ransacking the entire nation, you earned 3 cents, daredevil, you.

The problem is that the markets have a good economic image. Funding public spending for anything could get pretty chaotic. It could also become impossible.

Leaving the single market was the dumbest thing ever done in Britain’s history. Since then, I call it “Dunkirk upside down” and so far, that’s the whole story. There are no upsides to this mess.

Austerity, Scotland and a cheap and awful future

I think it’s fair to say that ‘austerity’ is the most genuinely hated economic term in modern British social history. Even the medieval poll tax, which provoked a rebellion, was not an institutionalized synonym for total revenue failure, but the phrase covers all the bases.

Austerity could also literally be the last word that separates Scotland from the UK. Things are bad enough without more poverty in the mix. This shrewdly planned move could also remove other income from the playing field, if Scottish assets are not included.

In short, another way to file for bankruptcy has now been perfected. England and Wales will have a great time trying to fund things. Their people will return to their rustic ways. One day, Britain will yearn to have its own freehold Dorito. Walking upright will no longer be a problem. Plantain will be the staple, picked from the smiling, sunny swamps around Westminster.

In the meantime, I’ll stick to my view that “conservative economics” is a contradiction in terms, for some reason.


The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.


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