Denseman on the Rattis

Formerly known as the Widmann Blog


If the pound collapses…

Few Pounds
Originally uploaded by René Ehrhardt

Of course the financial problems are not restricted to the UK, but as the recent news that this country is contracting shows, it’s definitely worse off than many similar places.

That means that it’s not impossible that the pound will fall even further.

So it’s worth asking what the effects will be if the pound collapses, e.g., to €1 = $1.50 = £2 (it’s £0.92 at the moment).

Obviously, holidays and many importing goods will become unaffordable to most Britons, and the UK might become a very popular tourist destination.

However, the effects will surely be very different depending on who you are.

For instance, if you’re exporting goods or services, you’re likely to be much better off, and that will most likely have an effect on all people working in such industries.

Also, some jobs are very international, because people can very easily take their skills and find an equivalent job in other countries. The typical example is doctors, but I presume the same is true for investment bankers, engineers and others.

On the other hand, some jobs just don’t travel very well, so lawyers, civil servants, teachers and many low-paid workers will probably find it much harder to argue that they need a huge salary increase to counterbalance the effects of the low pound.

The same is true for those not in work, such as the unemployed and the pensioners.

A low pound would also make it rather unattractive to come here to work. Imagine a job paying £10 an hour here, but €8 in Slovakia. It would have seemed really attractive to a Slovakian a couple a years ago, marginally better at the moment, but very unattractive if the pound collapsed.

On the other hand, it would possibly lead to mass emigration from Britain because so many jobs would be better paid abroad.

4 thoughts on “If the pound collapses…

  • The thing that most people forget when they bring up scary stories about the coming collapse of a major currency is that the market has a self-regulating effect due to the globalization: If the pound drops, the British industries will compete a lot better internationally, British tourism will increase, the British loans will shrink, etc. All while British goods don’t change their value internally. Imported goods will be more expensive, which would be bad for a small economy like Iceland, but for England, it’d just mean that people would be more likely to buy British cars instead of German ones, British computer industry might start up again etc. As long as there is a solid industry, a full-on collaps is very unlikely.

  • True. The problem is that Britain has very little manufacturing left, and as I’ve written in another blog posting recently, engineering skills are not valued in the same way as in most other countries.
    However, if the pound stays low for long enough, of course what you suggest will happen eventually.

  • I think Lars hit the nail on the head – as long as there’s a solid industry – that’s the problem, there isn’t. We have 2 sectors in the UK, the service industries and the unemployable – ie those who would have worked in manual jobs 2 generations ago but now stay home for a lifetime on the dole, while the wife works part time in a super market. We don’t manufacture and with our low pound we can’t attract any German (or whatever) business people here to retrain us, ok we will attract a tourist or 2 but even we don’t like holidaying here and will be upset if we have to stay. We will no longer be able to attract thomas-types to our shores and anyone with half a brain graduating here will see they can simply leave for Europe, US or Oz if they want a better standard of living leaving huge gaps in medical staff, teaching and the likes. Doomed, I say…

  • Oh and of course, I forgot to mention – attracting new industires here would necessitate the government admitting we are going to stay a failing nation – they can’t do that without causing alarm, so every day our newspapers feed us that the end of recession is just round the corner, the housing market is about to pick up etc – things will soon be back to normal – while we are giving out this impression (that the pound will recover) no one will want to invest in new manufacturing here.
    Another problem is the way we see ourselves. Ask any Brit if the UK is similar to Poland in power and importance or similar to France and Germany, of course we see ourselves as France or Germany, so admitting we are the new Poland is not something any sane politician will do.


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