Tuesday, 17 April 2007
$2 = £1 - so why is this?
I saw the post at Iain Dale's earlier and the comments , many of which suggested he does not know what he is talking about. All Iain said was that it seemed odd to have such a high exchange rate. He is right to say this. There are many factors which influence a floating currency.
Now that we do have a floating currency, although it cannot be 'controlled' as the Left would like, it becomes instead a good bell weather. Our currency is strong because the Dollar is so weak and our interest rates are relatively high. Our high interest rates are caused in part by government over-expenditure.
Also as the graph above shows, we would do well to remember that the Pound is a petro-currency. In fact it is at the peak of this cycle as the graph shows. Having a petro- currency will always be bad for inflation and. This will force high interest rates and so 'humble' manufacturing.
People who accuse Thatcher of destroying our manufacturing base would do well to examine the chart above and see how closely it matches the de-industrialisation.
I think overall that this is no bad thing, it is just part of our economic development. Perhaps as our Petro-Pound fades in the next 2 decades our manufacturing base will grow again?
P.S. On the other big story of the day, I have said rates will hit 6% this year, can't see anything that makes me change my mind.
Posted by CityUnslicker