AN OUTSIDE VIEW

The £ has dropped 9% against the Euro since November. This is a comparable rate of decline to that which occurred in the run-up to Black Wednesday in 1992. That led to Britain's enforced exist from the exchange rate mechanism and demolished the Conservative government's reputation for economic competence. Fortunately for the present government, the newspapers now devote their headlines to trivia and to stirring up anti-immigrant emotion. But this respite will be short lived. The inflationary effects of the falling pound, of around 3%, will quickly find their way into the shops in the form of higher prices of foods, especially out-of-season produce imported from southern Europe, where higher costs will be augmented by recent fuel price rises. These are likely to lead to pay demands, which will further compound the inflationary pressure. The weaker pound will also cause problems in the Eurozone as producers find it more difficult to export to Britain, and this could hit growth in...