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Predictions of the demise of the pound are exaggerated

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The pound has stumbled lower amid uncertainty over Boris Johnson’s leadership despite his victory in Monday’s confidence vote and as fears mount over the strength of the UK economy. (PA Archive)
The pound has stumbled lower amid uncertainty over Boris Johnson’s leadership despite his victory in Monday’s confidence vote and as fears mount over the strength of the UK economy. (PA Archive)

THIS week saw the 40th anniversary of the arrival of the 20p piece. What would that 1982 coin be worth now? 5p. That’s what inflation does to the pound in your pocket, was the point.

Some saw that as indicative of a wider malaise for our currency – there is no question it is under pressure.

It is down from $1.42 a year ago to around $1.24 today, which some blame on Brexit, some on Boris, some on bitcoin. (Some blame it on the boogie.)

The question is where sterling goes from here and the confidence with which experts make forecasts owes little to their track record and much to hubris.

As JK Galbraith nearly said, the only point of currency forecasts is to make economic forecasts look respectable.

Some of the more hysterical commentary has sterling languishing as an emerging market currency.

As if the pound were in any way comparable to the Brazilian Real or the Indian Rupee (or indeed, the Russian Ruble).

Not only is Sterling not like that, it has been rather more stable than other currencies.

Work from Panmure Gordon, the non-hysterical end of the City, shows that since 2017 sterling has traded within a narrower range than the dollar, the euro and the yen.

So whenever it moves outside of that range, it looks cheap, traders remember that Britain is not such a bad place, and the pound recovers.

It’s notable that some of the same voices predicting the demise of the pound are the folk who wanted to scrap it in favour of the euro anyway. They’ve really got it in for notes that feature the Queen. And are so angry about Brexit they’d be pleased to the UK become some sort of banana republic.

Predictions like that are catchy. And wrong, every time so far.

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