THE pound fell to an exchange rate of $1.77 yesterday, its lowest level for two-and-a-half years. In June sterling was trading at $2, but its exchange rate has dropped by 10 per cent against the dollar in the past month.
The pound has also fallen against the euro to its lowest level for two years and is at a 12-year low against a basket of the currencies of the countries with which Britain carries out most trade.
As there is no objective measure of value of any currency today, exchange rates reflect the ‘confidence’ in these currencies which are merely credit notes.
Those who hold a particular currency hope that its exchange rate will appreciate against other currencies and allow them to purchase the largest quantity of commodities.
Speculative buying and selling by banks, hedge funds and private equity groups sends exchange rates up and down every day.
It would be expected that the pound would attract most funds because the Bank of England (BoE) interest rate of five per cent is higher than that of the European Central Bank (ECB) (4.25 per cent) and the Federal Reserve Board (FRB) in the United States (2.00 per cent).
However, it was reported on Tuesday that the FRB is expected to raise interest rates this month. This is already attracting funds away from Europe and particularly from Britain.
It is the state of the British capitalist economy that has sent the pound into free fall.
The report from the Organisation for Economic Cooperation and Development (OECD), published on Tuesday, concerning the prospects for the world economy and individual countries, maintained that Britain is the only G7 state in which the economy is already contracting.
It is known that there was zero growth in Gross Domestic Product (GDP) in Britain in the second quarter of 2008.
The OECD forecast that GDP in the UK will fall at an annual rate of 0.3 per cent in the third quarter and by 0.4 per cent in the final quarter, with an overall growth rate of only 1.2 per cent for 2008, less than that of the US and the eurozone.
The OECD said that ‘potential further losses on housing and construction finance’ are also a source of concern for the financial sector, especially as the ‘depth and extent of financial disruption is still uncertain’.
Prime Minister Gordon Brown’s £1.6bn package of measure to address the dramatic decline in the property market, announced on Tuesday, obviously did not impress the speculators. The pound continued to plunge yesterday.
The OECD also warned that ‘sharp increases in energy and food prices have boosted headline inflation and sapped real incomes of consumers’.
It expected the recent fall in commodity prices, as speculators have moved out of commodities into currencies and other activities, could lead to ‘some moderation of both headline and underlying inflation’.
In contrast, the weakness of sterling means that all imports, particularly oil, gas and metals, the world prices of which are priced in dollars, will be more expensive in Britain.
The falling pound, inflation and a recession that will see thousands of jobs axed before Christmas, means that workers must demand their trade unions take action to defend them from these effects of the crisis of British capitalism, which is being devastated by the world crisis.
Factory closures must be answered with occupations and sackings with work-sharing agreements, involving no loss of pay.
Workers must demand their trade unions draw up their own cost of living index and establish pay deals incorporating a sliding scale of wages, through mass strike action.
Companies that refuse to guarantee jobs and wages must be placed under workers’ control and nationalised without compensation.
It is clear that only the removal of the Brown government and its replacement with a workers’ government, that will overthrow capitalism and carry out socialist policies, can protect the working class from this threatening catastrophe.
Join the Workers Revolutionary Party, build a new leadership in the trade unions and fight for a socialist future!
