Can anything halt the pound’s fall?

My predecessor Christopher Fildes looked at exchange rates through a cocktail glass: three negronis for the Italian lira equivalent of a tenner, good; a $2 martini for £1, even better. That latter ratio applied briefly 30 years ago when, he wrote, the favoured tipple ‘brushed against my lips like an angel’s kiss’. It recurred during the financial crisis of 2007-08, when no one was really able to enjoy it, and has never been seen since. On Monday, as Liz Truss was crowned, the pound dipped below $1.15, in sight of its 1985 all-time low of $1.05. ‘The prospect of …parity versus the dollar,’ said Bloomberg, ‘is becoming ever less outlandish.’

What cocktail of misfortunes brought us to this? The first problem is that the dollar is so strong. It’s already at par with the euro and has steamrollered the yen. That reflects the Federal Reserve’s muscular approach to anti-inflationary rate rises, America’s relatively secure energy supplies and under-lying economic strengths, and the dollar’s role as a reserve currency. The second problem is that the pound is so weak – because markets think that UK inflation will continue rising apace; that recession is certain; that the Bank of England is ineffectual; that public borrowing costs are set to rocket; and that we’re too dependent on foreign capital to fund our deficits.

Can anything deflect the pound’s fall, which is making fuel and other imports even more expensive? My man on the foreign exchanges says: ‘If Kwasi Kwarteng as Truss’s new Chancellor were to adopt the tougher tone of Rishi Sunak, the market would take heart’ and we might see a modest rally. But I’m not betting on it as I tot up the likely cost of a long-planned trip to the US next month: I’ll think myself lucky if a $15 martini costs me less than £15.

Decisions must be taken…

A friend of mine who runs a FTSE company once worked for the late Christopher Bland, a boardroom gladiator whose chairmanships included BT, the BBC and National Freight. Famed for intolerance of waffle, Bland gave my chum this advice for anyone in a leadership position: ‘When you’re presented with a decision, always take it, never vacillate. If your judgment’s good, you’ll be right 90 per cent of the time. If your judgment’s poor, you don’t deserve the top job.’

Boris Johnson – in my direct view when he was our editor – was a vacillator who took decisions only when he couldn’t avoid them, and often as stabs in the dark. As for Liz Truss – to adapt her remark about President Macron – I’ll judge her on deeds not words, hoping the deeds turn out more pragmatic than the ideological words. On that front, she might take a lesson from the French leader, whose approach to capping energy bills, corralling energy companies, fostering interconnections with Spain and Algeria and declaring targets for reduced power usage has set her a notably business-like example.

…starting with this one

Kwasi Kwarteng has a forceful manner of which Bland might have approved, but left one major decision for his successor as business secretary, Jacob Rees-Mogg. Back in May, he ‘called in’ for national security assessment the acquisition by Nexperia – a Dutch subsidiary of a Chinese parent, Wingtech – of Newport Wafer Fab, which, though sold for just £63 million, counts as the UK’s largest semiconductor maker because several bigger UK businesses in that sector (led by Arm Holdings, owned by Softbank of Japan) have already passed into foreign hands.

This is the first significant use of powers under the 2021 National Security and Investment Act, which says that a decision to block or allow a takeover should be made within a maximum of 75 days. In this case that would have been by mid-August, when Kwarteng was busy campaigning for Truss and perhaps constrained by civil servants from making a controversial ruling during the Downing Street interregnum. Now we may not hear the answer until October.

Most observers saw the NS&I Act as a too-late attempt to protect UK intellectual property that might have defence or cybersecurity applications from falling into Chinese or other unfriendly hands. Truss herself was a sabre-rattler towards China as foreign secretary – but geopolitical strategists might advise that it’s healthier for China to beef up its microchip capability by acquiring small fry like Newport than by invading Taiwan in order to seize the globally important Taiwan Semiconductor Manufacturing Company.

Rees-Mogg might also be influenced by Sir Geoffrey Owen, who, in a recent paper for Policy Exchange, concluded that ‘the government should be wary of trying to steer the [semiconductor] industry in a particular direction. Decisions on which development avenues are the most promising are best left to the private sector’.

Ideology is easy to spout, we might add, but governing is complicated.

Back to the 1950s

No politician or columnist has a real solution for the energy price spike. We might agree, with varying levels of reluctance, that borrowed public money must be deployed to cushion households and businesses from the worst of its impacts. I think we’d also agree – though it’s hardly a consoling thought for advocates of laissez-faire – that only market forces can actually end the crisis, by bringing global supply, demand and expectations back into balance. Ministers nevertheless must maintain the fiction that all problems can be solved by decisive political intervention, whereas columnists can resort to restaurant tips instead.

So allow me to mention Lastingham Grange on the North York Moors, where an idyllic lunch on the rose-garden terrace last week came in at my target price of £30 a head. So comfortably old-fashioned that it might be a setting for Miss Marple, the hotel is a time capsule from the 1950s – the perfect place to recapture that decade’s frugal and resilient spirit, so needed today.