Parliamentary Scrutiny of Leaving the EU — House of Commons, 2016-10-12
Topic: Macroeconomics
Elizabeth Louise Kendall (Labour, Centre-left): There have been many passionate speeches about Parliament’s role in holding the Government to account for their Brexit decisions in the months and years ahead, but we must also focus on the here and now. This morning, the Bank of England released data showing that sterling has reached an historic 168-year low. The pound is now worth less than it was in the 1976 sterling crisis when the International Monetary Fund had to bail us out; in the aftermath of black Wednesday, when sterling left the exchange rate mechanism; and at the height of the financial crisis in 2008 Sterling goes up and down, and foreign exchange markets are not always the most reliable measure of what is happening in our economy, but when currency markets move so sharply and for a significant period, the Government should pay attention, yet so far Ministers have not. The pound has fallen by around 20% over the past year. About half of that happened well after the referendum result as the Government’s position on Brexit began to take shape. The moves in the currency markets are backed by billions of dollars. The markets are saying that UK domestic assets look less valuable; that the UK seems to be a less attractive country in which to invest; and that the UK’s growth prospects look set to be weaker The fall in sterling matters to every single household in the UK. It is not just that foreign holidays are more expensive; it is that the costs of everyday goods that are made abroad, such as fuel, food and clothes, are rising too. British households are more dependent on imports than before, with imports now representing about 30% of our GDP. The pound in people’s pockets has been devalued. If prices rise faster than wages, people will be poorer It may be that a devaluation in sterling will make our exports more competitive. If exports rise and imports fall, our large trade deficit could decrease, helping to rebalance our economy. However, this has not happened after previous sterling crises, at least not on a lasting basis. An improvement in Britain’s trade position may be even harder to achieve now if Brexit reduces access to the EU single market and alternative export markets take years to open up There is another important consequence of the falling pound, which has so far received far too little attention. In her recent party conference speech, the Prime Minister said that while monetary policy has provided "the necessary emergency medicine after the financial crisis," super-low interest rates and quantitative easing "have had some bad side-effects" People with assets have become richer, but those without have suffered. People with mortgages have found their debts are cheaper, but those with savings have found themselves poorer. What the Prime Minister has failed to recognise is that the falling pound is yet again benefiting the asset-rich. Shareholders in FTSE 100 companies, which make most of their profits abroad, or those with foreign assets, have seen yet another extraordinary windfall. While the already asset-rich benefit from the falling pound, the asset-poor suffer as costs rise and the price of everyday goods imported from abroad go up The Government rightly intend to respect the will of the people and to do the best to make Brexit work, as do I. They must recognise, however, that the falling pound means that the British people could become poorer than they were before the referendum, at exactly the same time as real incomes have finally started to recover from the sharp squeeze after the financial crisis. The Government must acknowledge this and act if they want to make good on their promise of an economy that works for all and not just a few at the top.