The fall of sterling


I'm just off to Brussels where a sandwich now costs about £500 because the pound is so low. Currencies have their ups and downs, but smooth those out and they're a pretty good indicator of how an economy is faring. Basically, if nobody is buying your stuff, they don't need to buy your currency to pay for it, and your currency collapses. Well, a huge wodge of the UK economy was banking and financial services – promoted enthusiastically from the moment that Tony Blair and Gordon Brown assumed office in 1997 – but that business has been stopped in its tracks. Nobody wants to buy stuff from a bunch of wallies who sail so close to the wind that they keel over and have to be bailed out by the government.

The stock market is bouncing up again, but it's a dead cat sort of bounce. There's no obvious reason for it, other than the fact that Obama is proposing to spend a trillion dollars giving America infrastructure it doesn't need. The FTSE 100 companies are highly international firms, and some are almost American, really, so that helps them. But it doesn't help the UK economy all that much. Maybe we'll get lucky and Obama will buy a few of our JCBs to dig his foundations.

No, the pound is the best indicator, and that's sliding downwards. A few years back, Britain was the world's fourth largest economy, though the rise of the huge economies of India and China booted it down to sixth. Then we were overhauled by Germany. There's a fair chance that when the books are closed on 2008 we'll turn out to be behind Russia and (horrors) France – and maybe even Brazil and Italy. How humiliating is that? I'm afraid that Gordon Brown's boast that Britain was better placed than most to survive the downturn stands exposed as a total lie. Ask the foreign exchange dealers.