Look back in relief on Black Wednesday
FOR anyone with debts then, Black Wednesday, which was 25 years ago today, was the economic equivalent of their “JFK moment”. When I went to work that morning I left behind an 18-month old mortgage and Minimum Lending Rate (MLR) – that’s what we called Bank Rate in 1992 – of 10 per cent.
I was due to spend the day with colleagues supporting the board of a major construction firm in its annual strategy deliberations. By mid-morning the session was well under way. Presciently (oh, how presciently!) we had flagged a series of risks to the economic outlook arising from the UK’s membership of the Exchange Rate Mechanism (ERM). Interest rates might rise, deepening and prolonging the recession. Perhaps the government would throw in the towel and leave the ERM. But then what? How would it combat inflation?
Around eleven o’clock came a knock on the boardroom door. A woman entered and handed the chairman a piece of paper. (Note to younger readers: that’s how you got news back then.) “MLR has risen to 12 per cent,” he said. We continued through a sandwich lunch and into the afternoon, discussing all manner of issues important to a construction firm. Just before four o’clock, another knock. Same woman. Similar paper. “MLR,” announced the chairman, “is rising to 15 per cent.” Colour drained from every face in the room.
The ERM was a precursor of the euro. Countries agreed their exchange rates would move within narrow bands. Britain joined the ERM in October 1990 valuing the pound at 2.95 deutschmarks plus or minus 2.25 per cent.
A country fixing its exchange rate when capital is free to flow accepts the interest rate hand markets deal.
For most of its time in the ERM, Britain
There was joy as lending rates fell back again.
endured a combination of recession and seven per cent a year price rises. In Germany, the post-unification boom pushed inflation to levels they found uncomfortably high, averaging above three per cent. In response, the Bundesbank steadily raised interest rates. With German rates rising, keeping sterling within its ERM bands meant the UK had to either hike interest rates or buy pounds.
With 10 per cent unemployment and
1.7 million households in negative equity investors guessed that the Government would not push interest rates to levels needed to defend the pound. And they knew that Britain’s reserves could stretch only so far. So, they borrowed pounds to buy deutschmarks putting further downward pressure on sterling.
On the evening of September 16 the Government’s will broke: Bank Rate at 15 per cent was unsustainable.
And with one bound the UK economy was free. Sterling fell 10 per cent in two weeks. With the world emerging from recession, growth resumed, led by exports. Inflation fell and unemployment peaked in early 1993, all this amidst fiscal austerity.
ERM membership was a scarring experience, not least for the Conservative Party whose reputation for economic competence it torpedoed. But the UK eventually emerged stronger and with an inflation-fighting framework that has endured. Above all, Black Wednesday probably saved us from a worse fate still: membership of the euro. IT sounds like the kind of product dreamt up in Willy Wonka’s chocolate factory.
A Glasgow-based scientist has created a new style of chocolate bar that is said to taste good while being healthier than its market rivals.
And demand is such that Dr Neil Robson and wife Suzanne, owners of Rebel Chocolate, are ramping up production from the current 200, 90g bars per week to 2,000 by the end of the year.
The husband and wife, who met while studying towards PhDs in immunology at the University of Glasgow, launched Rebel earlier this year. Their product is currently stocked by independent outlets such as Pittenweem Chocolate Shop and Kimbles Café, Deli and Chocolate Shop in Glasgow, and available