Britain drops out of the Exchange Rate Mechanism
The 16th of January 1992 AD
The time Britain spent within the ERM was not particularly happy to say the least. The country entered a recession that continued the decline of British industry. Political instability and in-fighting dogged the government, resulting eventually in the replacement of Margaret Thatcher with John Major. And interest rates and inflation remained uncomfortably high.
That unhappy background enabled, some might say invited, currency speculators including George Soros to move against the Pound.
The Pound was allowed a 6 per cent fluctuation from the DM2.95 rate it had been set at when entering the ERM on October 8 1990 . Failure to remain within the system would be a massive political blow to the Tory government, so Premier Major and Chancellor Norman Lamont fought hard to prevent that embarrassment: they spent £6bn in supporting the currency, buying it on September 16 1992 as fast as the speculators and other investors sold it. Interest rates were hiked dramatically as another weapon to fight off the selling of the Pound, but though they went from 10 per cent to 15 per cent it made no difference. Eventually the Pound was withdrawn from the ERM, never to return.
That night, according to legend, Norman Lamont sang in his bath, overjoyed at leaving the ERM. The electorate were not as happy about what the futile attempts to remain within it had cost the country, and with the return to unstable exchange rates industry was far from delighted too.
Lamont offered his resignation to Prime Minister Major, but it was refused, perhaps because the Chancellor rather than the Premier was the target of press kickings until he was eventually removed from the post of Chancellor in 1993.
Though the day is still referred to as Black Wednesday by most, others have since concluded it should be White Wednesday, as the British economy began its recovery after the exit. The same commentators would probably be pleased that being ejected from the ERM also meant the Pound has not been able to join the Euro.
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