Economy (+ industrial relations) Flashcards
Explain what joining the ERM did to exports.
Britain joined the ERM in 1990 - this created parity between different European currencies through pegging them against the Deutschmark, the strongest currency at the time. The exchange value of the sterling was far too ambitious and as a result exports were greatly overpriced.
What was the exchange value of the pound sterling when they joined the ERM?
DM2.95
What happened in September 1992?
International bankers sensed the sterling was overpriced and began to speculate against it on the money market. The value of the pound began to fall rapidly. Lamont attempted to raise interest levels and sell foreign reserves but in the end they had to withdraw from the ERM.
Black Wednesday
16th September 1992 - withdrawal from the ERM
What did Lamont raise interest levels too? How much of the UK’s foreign reserves did he sell?
interest rates were raised from 10% to 15% and £30bn worth of UKs foreign reserves were sold
Consequences of withdrawal from ERM?
- conservatives reputation for financial expertise was damaged
- cabinet divisions widened between those who were pro-europe and those who were euro-skeptics
- soaring interest rates giving Labour a 16 point lead in popularity rates
In what ways could the withdrawal from the ERM be labelled ‘White Wednesday’?
It had a positive long term effect and the pound began to recover. By 1996 it had reached a value of DM3. Growth rate under Blair was 2.7% and this was arguably down to Major’s decision to withdraw from the ERM.
Inflation rate 1992? 1996?
3.74% in 1992 and then 2.41% by 1996
Bank rate in March 1992?
10.38%
Prices for what began to rise rapidly during the 1990s but then decrease? (Lawson Boom)
Houses
How many houses were in negative equity at the end of 1992 compared to the start?
300 000 at the beginning but 900 000 at the end
