Despite the estimated £3.4 billion loss caused by Black Wednesday – 16th September 1992, when the government withdrew sterling from the European Exchange Rate Mechanism – the UK economy has bounced back and seen a substantial improvement in economic performance, new research from Halifax Financial Services has found.
September 1992 saw recession and interest rates in double figures, but this month marks the 15th anniversary of the ERM withdrawal, and Halifax has revealed that, since then, the UK economy has demonstrated sustained growth and relatively low and stable inflation and interest rates.
Britain has seen an unprecedented 60 successive quarters of growth since Black Wednesday, and the economy has grown more quickly and been significantly more stable in the years since the exit than in the 15 years which preceded it.
Additionally, despite five increases in 12 months, interest rates have remained lower and fluctuated less, and inflation has remained similarly low and less volatile in the past 15 years. Since it was reduced to 9% several days after Black Wednesday occurred, the average base rate has been 5.5%, compared to an 11.7% average in the 15 years prior to it when the rate was frequently in double figures – something which has not happened since that day.
This unbroken 15 year stretch of economic growth is unique to the UK amongst other OECD economies (Organisation for Economic Cooperation and Development), as no other can boast the same. Whereas in 1992 when Britain was the sixth largest OCED economy, it is since surpassed France and Italy to become the fourth largest in the world and second largest in Europe, behind only the US, Japan and Germany.
With the exception of the United States, the UK’s economic growth in the last five years is unmatched by any of the five largest economies in the world – The US and UK are again joined by Japan, France and Germany in the ‘G5’.
Halifax Financial Services economist, Tim Crawford, commented: “The UK economy has undoubtedly delivered an impressive combination of steady and sustained growth together with low and relatively stable inflation and interest rates since sterling's ERM exit 15 years ago. The UK's new-found economic stability is the dream of both the public and policymakers during the turbulent 1970s and 1980s.”
“Whilst the pound's ERM departure proved to be a catalyst for the UK's much improved economic performance, we cannot conclude that the previous cycles of economic boom and bust have been eradicated. Economic policymakers will need to remain vigilant if the next 15 years are to prove as successful as the past decade and a half.”
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