16th September 1992. Black Wednesday.
Tory Prime-Minister, John Major had said ‘It’ll be an interesting day’, reminds me of a time when Bank Rate had risen to 15%: in 2015 it is 0.5%. Borrowers Beware!
Chancellor of the Exchequer, Norman Lamont was at the centre of the storm, and eventually the sacrificial lamb, after the fiasco of the government’s attempts to keep within the exchange limits of the Exchange Rate Mechanism (ERM), Today, Black Wednesday, September 1992.
A month in politics is a long time: for back on August 26th, Lamont was, ‘going to maintain sterling’s parity and we will do whatever is necessary’.
By 8th September, Major says: ‘the soft option, the devaluers’ option, would be a betrayal of our future’.
In May next year, Lamont was sacked by Major. The European Union (EU), thus ruined him, and eventually John Major, as it previously had Margaret Thatcher in 1990.(1)
Under ERM, each currency had a central Bank- Rate, tied to the Deutchmark, with a band either side. If any country fell towards the bottom, their central banks had to support the rate..
We joined the ERM, as a rehearsal for monetary unification, on the 5th October 1990, when Major then Chancellor cut interest rates from 15% to 14%.
However by 1992, it was obvious that the pound had been fixed too high, there was a run on the currency, and by September interest rates were rising: Bank rate on that Black Wednesday went from 10 to 12% by 11.am. Lamont realizing the game was up told Major, only to be rebuffed.
Interest rates accordingly rose to 15%, but sterling was still outside the allowed band. Not until 7.30 pm did Major concede defeat when we pulled out of ERM.
Now Sterling was allowed to float, but not before speculators such as George Soros, had made £1b: the country’s reserves lost £3.4b, in attempting to bolster the pound, a lot of money then.
Eventually Lamont, flanked by Gus O’Donnell, Treasury Mandarin, and David Cameron (advisor), were photographed outside the Treasury, explaining the disaster.
Press photographers wanted to include a [down the] drain-pipe in the background, but were thwarted!
The result of all the shenanigans, was recession, unemployment, and bankruptcies, the highest since the 1930s, and BLAIRISM.
John Major probably rued the day when as Thatcher’s Chancellor he advocated accession to ERM. He lost the General Election in 1997, and later said he should have resigned. Lamont lost his seat and became a member of the Lords.
In January 1999, the Euro supplanted the Ecu, launched at $1.18. Britain retains its Pound.
(1) Lamont went on 27th May 1993.
Ref: theguardian.com/black-wednesday/Image of headlines. Phillip Inman.13.9.2012.
Ref: bbc.co.uk/onthisday/Sept. 16th 1992.
Ref: conservativehomeblogs.com/Image of Lamont and Cameron.