OCR 2888 - Sterling Questions

The exchange rate figures prominently in the stimulus material for the OCR 2888 January 2009 paper. And in the Independent today Jeremy Warner writes about the recent fluctuations in sterling and the impact on key macroeconomic objectives for the UK such as inflationary pressures and the trade balance. It also touches on the question of economic convergence with the members of the Euro Area.

“By staying out of the euro, Britain is able to set interest rates to suit its own particular needs, rather than labour under a rate set for the eurozone as a whole, while the collapse in the exchange rate provides the impetus for the sort of export-led recovery that other European countries can only dream of. Our economic situation is already ruinous enough, the argument goes, but if we had been in the euro it would be even worse with little hope of redemption. Yet the argument can equally well be made the other way. As it happens, Britain is probably more converged with the eurozone right now in terms of the economic cycle, interest rates.”

Read the remainder of “Sterling was far too high. Now it may be going the other way”