Black Wednesday

   The name given to 16 September 1992, the day on which the Major government was forced to withdraw the pound from the Exchange Rate Mechanism (ERM) as a result of severe currency speculation. In the wake of the rejection of the Maastricht Treaty by the Danish voters in the spring of 1992, ERM currencies trading close to the bottom of their ERM bands came under attack in the foreign exchange markets from currency speculators. When the French Maastricht referendum yielded only a very narrow ‘yes’ vote, speculation which had gathered force in early September began to centre almost exclusively on the pound and the Italian lira. On 16 September, British ministers announced a rise in base interest rate from 10 per cent to 12 per cent in order to encourage speculators to buy sterling. They promised to raise the figure to 15 per cent the following day, but dealers kept selling pounds. By early evening, Chancellor Norman Lamont announced that Britain would leave the ERM.

   Membership of the ERM was the cornerstone of the government’s economic policy. The enforced exit was a devastating blow from which it never fully recovered, for it triggered a loss of trust among voters and an immediate collapse in support among many traditionally sympathetic newspapers. The Conservatives surrendered their reputation for sound economic management.