Rising Inflation and the Impact of Brexit

Lord Lawson spent his career battling inflation, but following the vote to leave the EU, rising prices appear to be on the horizon. Lawson has made it clear that he is indeed in the leave camp, and held that view consistently throughout his career.

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shareprices.com - Sunday, October 22, 2017

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Those in the remain camp feel that there is clear economic harm likely to arise from Brexit. Lawson spent much of his time in the 80s attempting to persuade the then Prime Minister Margaret Thatcher to put the pound in to the European Exchange Rate mechanism. The UK joined the ERM in 1990, only to then leave it in 1992. The membership of the mechanism proved to be a disaster for the Conservatives, then governed by Major. This led to the rise of the Euro-sceptics, and was one of the seeds for the referendum.

Lawson had been campaigning for the ERM because of the counter-inflationary properties of it. He had hoped that the Deutschmark would be a good anchor for the pound. It’s ironic, in some ways, then, that after so long campaigning to protect the economy from inflation, the Brexit is causing exactly that - with prices rising in shops, and consumer power falling in real terms. The Bank of England is threatening to tighten monetary policy, and while employment is improving, is that enough of a justification for rate increases?

The government is still working on trade deals and debating the Brexit bill, and it’s unclear what the long term impact will be, but in the short term we can expect a lot of pressur on the UK’s economy.

 

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