Newspaper article The Canadian Press

Editorial Exchange: Economic Damage from Brexit Underway

Newspaper article The Canadian Press

Editorial Exchange: Economic Damage from Brexit Underway

Article excerpt

Editorial Exchange: Economic damage from Brexit underway

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An editorial from the Winnipeg Free Press, published Aug. 8:

Great Britain has suffered economic damage already from its proposed exit from the European Union. The extent of the damage is seen in the fall of the exchange value of the British pound and in the measures the Bank of England announced last week (Aug. 4) to ease the pain.

The Bank of England estimated last week the pound sterling had fallen by nine per cent relative to European currencies and the U.S. dollar since Britons voted June 23 to pull out of the EU. The currency's value has fallen by 15 per cent since its peak last November when markets started pricing in a possible British exit from Europe. This rapid, involuntary devaluation of sterling may in time benefit British manufacturers, since their products will be priced lower for overseas purchasers. The immediate effect, however, is a weakening of Britons' buying power in world markets and an increase in the prices they must pay for imported goods.

Governor Mark Carney and the Bank of England are required to hold inflation in Britain as close as possible to two per cent a year while trying to sustain growth and employment. Because prices are likely to rise a great deal more than two per cent as the exchange-rate effect works through the economy, Mr. Carney faced a difficult choice between fighting inflation and sparing Britons from the recession and the widespread unemployment that would result from an uncompromising pursuit of stable prices.

His solution, announced last week, is to flood the country with cheap credit and compel British banks, so far as he can, to pass low interest rates on to their borrowers. With lower interest costs, he hopes British businesses and mortgage lenders will curb their price increases and soften the inflationary pressure. …

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