THE pound has dropped to its lowest level against the dollar since March 2009, on fears that the support of Boris Johnson, London’s mayor, for the Leave campaign has made Brexit more likely. While Mr Johnson’s economic adviser, Gerard Lyons, manfully suggested on BBC Radio 4’s The World at One that the decline was little to do with Brexit, the facts are against him. The pound fell against all major currencies and there were no economic data to drive the change; it has weakened in the past on polls indicating Brexit is more likely. British assets are less attractive to international investors because of the possibility of Brexit; those investors may be wrong in their view, but it is clearly their opinion.
So what, advocates of Brexit might ask. A falling pound is good for exporters. It can be, although it also drives up the cost of imports; a big fall in the pound is 2008-09 did not eliminate the trade deficit. The key point, however, is that…Continue reading