The UK cannot afford an uncontrolled currency dip: inflation alone might demand action to address this issue.
Interest rates cannot be raised: that would make things worse.
So capital controls will be on the agenda for post Brexit, I suspect.
I am not necessarily opposed to capital controls: that they may be forced upon the UK does not seem desirable. This is all beginning to feel somewhat uncomfortable (other words might be used).
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I think you jump the gun talking of capital controks at this relatively early stage. Such action would take us back pre 1980 and for its limited time impinge on the EU ” free movement of capital ” aspect ( though how we and other EU states reconciled that when cap controls still existed– in UK case 1975-1980– God only knows ) .
As you say rate hikes would upset the dangerously balanced apple cart . But there are ” suasion” tools e g BOE coming out with strong statement that sterling is vastly undervalued backed by supporting noises from Govt. Extension / increasing of QE etc.
Yellen /Draghi are doing this for stock/bond prices almost on a weekly basis. Bank ceo s have been doing it since 2009 for their zombie corporations mired in NPL s
Give it three months before deciding to sound the panic alarm. By which time situation may have reversed….or indeed worsened.
I said this may be for March 2019
It would be wise to do the thinking before then
It does illustrate how little control our government has over the whole Brexit agenda, Richard. First we have Johnson, Fox and Davies all making statements that were either contradicted or shown to be false by EC/EU personnel within minutes of being spoken. Then we have Fox giving a speech in which he demonstrates he knows very little about contemporary law on international trade. He then compounds his stupidity by talking about the rights of EU nationals to stay in the UK as a bargaining chip conveniently forgetting the number of UK nationals living in EU countries whose rights can also be used as a bargaining chip should he be stupid enough to start that particular “war”. And finally we have May talking about pre Article 50 talks when numerous senior EU and EC figures state unambiguously that will not happen. Factor into that messy cauldron runs on the pound, and “the market” beating on all manor of negotiating outcome (most of which will be bad for the UK by definition when bargaining one against 27) and I suspect May’s bounce won’t be anywhere near as evident come the Tory party conference next year.
I hope they enjoyed this year
It may be the best they get for some time
Ivan Horrocks
‘He then compounds his stupidity by talking about the rights of EU nationals to stay in the UK as a bargaining chip conveniently forgetting the number of UK nationals living in EU countries whose rights can also be used as a bargaining chip should he be stupid enough to start that particular “war”.’
I think your view is being skewed by animus against the Tory government – for being Tory. The grim reality is that those of us belonging to the latter category ARE DE FACTO ALREADY A BARGAINING-CHIP (in Brussels’ hands) to no less an extent than the EU nationals now in the UK are (in the UK govt’s).
I feel for my EU counterparts now living in UK and perhaps fearing for their futures – not least because that’s the exact obverse of my own situation. It’s for that very reason that I applaud the UK govt taking the position it has, which you’re criticising them for (without, I imagine having given much though to the predicament we Brits in Europe are *already* in).
For us this isn’t just a stick with which to beat a political party one dislikes. Unlike those who have no personal stake whatever in the outcome, for us it’s a matter of potentially life-changing importance that such a deal be secured, and I can assure you that that’s a no less uncomfortable position for us Brits who are in it than it is for those EU nationals in the eqivalent position in UK.
You or anyone else would have to be crazy to believe that the best way of getting the party one is negotiating-with to give you something you want is to present him – without any quid pro quo whatever – with something equivalent that he wants from you.
The UK govt has been saying consistently that whilst being desirous in principle of reassuring the nationals of EU countries now living in UK that they won’t be kicked out as a consequence of Brexit, no binding undertaking to that effect can be given before an equivalent and equally-binding quid pro quo is formally forthcoming from Brussels in regard to us UK nationals now domiciled in EU countries. In so doing, far from “forgetting about” us, it is endeavouring to safeguard our interests: all Brussels needs to do is reciprocate in kind and all will be well.
Is this because you think the IMF may assert the UK is running out of money? Are haircuts a future possibility for the better off savers?
I think the chance the UK will run out of money is remote: we now know we can buy our own debt
And there’s nothing the EU can do about it any more
But I think in real terms there is a trading issue that will have internal impact and it could be very uncomfortable indeed
This sort of thing is always ‘swings and roundabouts.’ A fall in the pound has already improved specialist manufacturing and increases tourism as well as lowering the soaring balance oft trade deficit. True, Chinese imports will get more expensive but not buying this stuff will be good for the environment.
I doubt capital controls will come in -this has only happened in recent years when banks have collapsed as in Iceland and Cyprus and with the crisis in Greece where bank runs looked likely.
But you never know -I certainly don’t!
What an interesting circularity – the controls were lifted by Thatcher (order in council) in 1979 – probably in response to C&E (as was) intercepting the middle class at Dover as they attempted to go to France with a bagful of money to buy a French house (was happening even then). The measure to eliminate capital controls was thus an early “feel good” gift to the well off. So, thanks to the Tories it has all come full circle. Be interesting to see the limit £1k? £3k? “Excuse me sir how much cash do you have with you?” ain’t going to go down well with Mr & Mr in their high end Merc at Dover – still I have no doubts the French coppers in the other booth will see it light relief. If the controls are introduced – what happens to the flod of forign money into the London property scene. oh dear – back to the dollar premium?
In 1979 there were no debit cards, credit cards were held by a minority, and electronic money was a distant dream. How on earth would you enforce controls on any of those?
very easily indeed if the cards are issued through a UK bank. I should add that one of the reasons C&E had what looked like a good “hit rate” on people dodging the dollar premium was banks shopping their customers that pulled out £10k in cash (for example). In this case, the controls would be autommatic – simplest thing in the world.
The card problem has not been completely cracked yet
But it is being solved
The government not being in control of something is rather delicious. In this case the UK has a notionally independent central bank ( board appointed by HMG! ) which prints money, the value of which markets get to decide, those markets being comprised mostly of foreigners. If this all works out in the end it will be neoliberalism’s greatest domestic triumph. If the process of government not being in control here leads to genuinely bad outcomes, then you have an experimental result which damns neo-liberalism to life in a prison cell.
Meanwhile an awful lot more people seem to want to come to the UK than to leave.
Just curious about your last sentence about more people wanting to come here than leave as I have not seen any migration statistics during the last three months. My only anecdotal contribution is that someone resigned from one of the charities I volunteer with because of the uncertainty and she wanted her child to start at a new school abroad at the start of the academic year. It may be that both immigration and emigration will be well down. If most leavers previously did so to retire abroad, they are probably postponing a move at the moment because of the uncertainty.
Historically, developing countries that suffer currency crises have four macroeconomic similarilties:
1) Relatively high debt-to-GDP ratio.
2) Large current account deficit.
3) Relatively large fiscal deficit.
4) Relatively small FX reserves.
The UK economy has all these macroeconomic characteristics so sterling’s fall cannot be considered a surprise, even if it was almost definitely caused by algo’s.
Sorry, meant balance of payments deficit, not current account.