For campaigners battling over Britain’s European Union membership, the pound’s sharpest fall since the depths of the 2008 financial crisis creates political gold dust.
The pound has tumbled 5 cents to a seven-year low against the U.S. dollar in the four days since London Mayor Boris Johnson defied Prime Minister David Cameron and threw his weight behind a British exit.
The fall of the symbol of British economic strength goes to the heart of what anecdotal Reuters reporting, some opinion polls and past elections show could be the most important question for voters: Am I richer or poorer out?
Cameron says dropping out would be a leap in the dark, while Goldman Sachs and HSBC – which have both backed EU membership – cautioned that the world’s fourth-most traded currency could lose as much as a fifth of its value if Britain left the club.
Pro-Europeans cast sterling’s hiccup as an omen of the chaos that would follow a divorce. Opponents said voters would be unimpressed by scaremongering from elitist banks which in the 1990s warned of dire consequences if Britain opted out of the euro.
“It suits multinational banks to create volatility from which they can profit,” Richard Tice, a property entrepreneur who is helping to fund the Leave.EU campaign, told Reuters.
“A lower sterling is good for exports, which is good for jobs, and there is no inflation to worry about from imports, since deflation is the greater issue.”
Sterling hovered at $1.3910 GBP=D4 near seven-year lows against the dollar on Thursday and was on course for its worst weekly performance since 2009.
The currency’s fall prompted a rare comment on economic matters from Foreign Secretary Philip Hammond, who said it was a warning of the impact of leaving the EU.
“A vote to leave is a vote for an uncertain future, that’s a simple fact, and that uncertainty would generate immediate and negative reactions in financial markets … We’ve already had a foretaste of that this week in the currency markets,” he told parliament.
The “Stronger In” campaign said the pound could be worth 20 percent less if Britain leaves Europe.
“That means petrol, home gadgets, weekly shopping, holidays COST MORE,” it said in campaign material.
DEFENDING THE POUND
The fate of sterling, and London’s dominance of the $5.3 trillion-a-day global foreign exchange markets, have long been central to Britain’s perception of its tumultuous relationship with its European neighbours.
One of the world’s oldest currencies continually in use, sterling was once a symbol of Britain’s imperial might and has been used by both Cameron and eurosceptics as a symbol of British exceptionalism.
Nigel Farage’s UK Independence Party even uses the “£” sign as part of its emblem while Cameron lauded his European deal as giving protection to the currency.
“We have not just permanently protected the pound and our right to keep it, but ensured that we can’t be discriminated against,” Cameron said. He has not commented publicly on the fall in sterling.
Cameron had a front-row view of a currency crisis as a 25-year-old Treasury adviser in 1992, when then Prime Minister John Major was forced to pull sterling out of the European Exchange Rate Mechanism (ERM), a system intended to reduce exchange rate fluctuations ahead of monetary union.
“Black Wednesday”, on Sept. 16 of that year was Britain’s biggest financial humiliation since the sterling crisis of 1976 and helped turn British opinion against the monetary union.
Britain under Tony Blair later decided not to join the euro and thus locked itself out of the EU’s inner 19-member euro zone core. The pound has fallen against the euro this year.
With the pound just 4 cents above levels last seen when it sank towards parity with the dollar in the mid-1980s, the “in” campaign said the fall in sterling showed the risks of leaving the world’s biggest economic bloc.
“This starkly underlines the dangers of Britain leaving Europe. Our economic security would be put at risk and family finances would be hit as a result,” Lucy Thomas, Deputy Director of Britain Stronger In Europe, told Reuters.
“It is essential that Britain retains access to Europe’s free trade single market of 500 million consumers,” Thomas said. “Indeed, the mere possibility that Britain might leave the EU has now resulted in the value of the pound falling.”
Some businesses are not so sure.
“The truth is a weaker pound is good for British industry, it’s good for exports, it’s good for tourism,” said Nick Varney, CEO of Merlin Entertainments (MERL.L), the world’s second-biggest visitor attractions group behind Walt Disney (DIS.N).
“If Brexit happened and the pound went down I don’t think that would be too much of a disaster, I think it could be quite good,” Varney said.