Causes and impacts of the UK currency devaluation Essay

Causes and impacts of the UK currency devaluation - Essay Example ng the currency with the fourth highest trading volume in the foreign exchange market behind the US dollar, the euro, and the Japanese yen respectively (Pan). The sterling has been generally regarded as one of the high value based currency reserves of the world. Its value, in respect to the other currencies, has been on the higher side. This has been because of various reasons, one of the main being the good and reliable financial markets that the United Kingdom is able to offer to investors worldwide. Due to the stability within the UK, and the ensuing level of trust, it has been able to attract massive inflows because of the bourses and financial markets, particularly in London, providing burgeoning returns. The high value further, allowed greater consumption by the people of the United Kingdom, allowing greater imports and out of country vacations. The current financial crisis however sees the Pound Sterling being drastically devalued. In recent months, the Sterlings decline in value in relation to the euro is interpreted by economists and some political elements within the United Kingdom as evidence of diminishing faith in the British economy on worldwide currency markets. Political elements, especially those belonging to the liberal side have rushed to blame the policies of the Prime Minister Gordon Brown for the collapse in the Sterling’s value (Heffer). Sources close to the treasury hinted that the decision in the pre-Budget report to increase borrowing to fund reduction in taxes had led to a downturn in economic confidence and thus had affected willingness of people to spend, ultimately leading to the drop in the Pound. A Liberal Democrat Treasury spokesman observed that while the decrease in interest rates had been the main reason behind the fall in the sterling’s value, it was supplemented by the expectation that the rates would decline even further (Heffer). The sterling fell almost 17 per cent compared with the euro in 2008 as the Bank of England