Despite last week’s “flash crash”, the former Bank of England chief says reaction since the Brexit vote has been “over the top”.
The former Bank of England Governor, Mervyn King, has told Sky News that the plunge in the pound is a “welcome change” for the UK economy.
Lord King said that recent fears over the behaviour of the pound, which has fallen to its lowest level against the dollar since 1985, were overblown.
Speaking in New York, where he is currently teaching, he said: “The economy was slowing somewhat before the vote and we are in a position where the rest of the world is not offering us much help.
“So from that point of view the fall in sterling is a welcome change.”
The comments are highly significant, in part because any central banker’s remarks on currencies are closely watched, and in part because of the growing consternation about the possibility of a sterling crisis in the wake of the Brexit vote.
Last week the pound suffered a “flash crash”, falling suddenly from $1.26 to $1.14 in the space of a few seconds, prompting the Chancellor, Philip Hammond, to warn that the UK would face an extended period of turbulence as it adapted to its new circumstances.
But Lord King said: “The whole thing has generated reactions which are over the top.”
During the referendum campaign, someone said the real danger of Brexit is you’ll end up with higher interest rates, lower house prices and a lower exchange rate, and I thought: dream on.”
Because that’s what we’ve been trying to achieve for the past three years and now we have a chance of getting it.”
He concluded: “I don’t think we should fear [Brexit].
“It’s not a bed of roses, but nor is it the end of the world.”
Senior Conservative MP and Leave campaigner Bernard Jenkin agreed that the fall in the pound was not something to get the alarm bells ringing.
He told Sky News: “The fall in the value of the pound would be of great concern if we were already suffering inflation, because obviously it puts up import costs.
“But inflation is not a concern in our economy at the moment.
“If anything, we’ve been teetering on deflation, and if there is a minor inflationary effect from devaluation, that really isn’t going to do us any harm.”
But the economist and former government adviser Vicky Pryce , also talking to Sky News, struck a note of caution, saying: “We import an awful lot of our goods.
“If you look at what goes into manufacturing production, a lot of the import prices are rising very rapidly right now.
“(It) means that manufacturing costs are increasing, it means that their profits are being squeezed because they can’t pass it on to consumers.
“So we’re likely to be having higher costs all across, and of course inflation generally is going to rise.” (skynews)
