The pound and the Marmite crisis

Submitted by Matthew on 19 October, 2016 - 11:20 Author: Martin Thomas

It’s often thought bad in Marxist publications to write articles on the theme “we don’t know”, but that is what I have to do about the falling pound.

The exchange rate of the pound against other major currencies has fallen 17% since the Brexit vote on 23 June, and has recently had a further sudden lurch downwards. The inflation rate is ticking up a bit. Marmite is disappearing from the shelves at Tesco because its producer demanded a price rise to compensate for the falling exchange rate.

These trends could swell into dramas. The fall of the pound could spiral as speculators, seeing it sag, switch to other currencies and so make the pound fall further. The UK economy has a near-record 6% current-account deficit, and is highly dependent on speculative financial inflows. Rising inflation will push up interest rates and so mortgage payments, and could set off a wave of dispossessions.

It could, indeed it should, also spur sluggish trade unions into more militancy for wages. Rising inflation also has benign effects for capitalism. Most capitalist governments, recently, have been piling manipulation upon financial manipulation to try to push up inflation to the optimum rate of about 2% (they reckon; or some would say 4%), at which it eases debt burdens and helps speed spending without disrupting. UK inflation is still well below that.

Long-term, the Brexit turmoil is quite likely to bring dramas from a falling exchange rate. Whether it does that now, or in the next year so, is another matter. Not yet. Beyond that, we don’t know.

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