THE pound has been the biggest post-Brexit casualty in the financial markets. It has fallen from almost $1.50 to around $1.30 against the dollar; less so against the euro which itself has been dragged down by Brexit worries. The immediate impact for British citizens is a cut in their standard of living; it costs more to buy goods from abroad, whether it be imported commodities or foreign holidays.

Of course, currency depreciation can be a very useful tool for countries when they have become locked in to an overvalued exchange rate. Many people will recall Britain’s departure from the Exchange Rate Mechanism in 1992 when the economy perked up quickly and the inflationary impact was limited. But the circumstances were very different; interest rates were 12% and were brought down rapidly while there was a lot of spare capacity in the economy (unemployment was 10%). Now interest rates are…Continue reading