Will Brexit Affect The Pound In Your Pocket?

In 1967 Harold Wilson devalued the pound by 14%.  This was a big shock to the system, and he felt obliged to make a special television appearance to explain what was happening. He tried to minimise the  importance of the event by explaining that this didn't affect the pound in your pocket. The phrase was a memorable one and would haunt him for the rest of his career.  The plain fact was that it did indeed affect the pound in your pocket. It was now worth 14% less.



Economics is not an exact science.  It isn't really a science at all.  Just what happens when a currency falls in value isn't easy to predict. Very roughly it is a bit like a sale in a shop.  You knock down your prices which attracts some previously reluctant customers.  But you also cut your margins to all your customers - so you become less profitable.  Whether the extra custom is worth the reduced value of the sales you make is hard to tell.  Retailers who try to discount their way out of a tricky situation may or may not succeed.  It might be part of a long term strategy of course.  This might do better but even here there are no guarantees.


So although the fall in the value of the pound that has been triggered off by Brexit seems to be having some beneficial effects in the short run, these might not last.  They might even be reversed. In 1967 the effect did not prove to be all that great.  Economic growth continued much the same as it had throughout the sixties.  Certainly the economy did pretty well compared to the seventies.  But voters in 1970 couldn't compare Wilson's performance with the future and were unimpressed.  He lost the election held that year.

The Brexit devaluation is taking place in a completely different political situation of course.  The economy is much more diverse and much more international.  The consequences are even less predictable. I have already noticed increases in my business costs and a rise in overseas enquiries.  I haven't worked out if it is an overall good thing or not. I may never do.  I suspect that the economics profession may never be able to for the country as a whole either. I will be taking whatever actions I am able to to at least cope and hopefully profit from the changing situation.  I am seeing other businesses do the same. I have a feeling it will sort of work out okay.

But for anyone who is not in a position to adapt - unskilled workers, pensioners, people whose income is derived from investments in particular assets - well Brexit is basically spinning a slot machine for you. I hope the results are to your liking.