Britain seeks to reassure traders as oil meeting shakes the pound
It is easy to overstate the impact on Britain of the recent slide in the value of the pound - and the Thatcher government is stressing the fact to try to reassure the anxious money traders of the world.Skip to next paragraph
Subscribe Today to the Monitor
Britain does earn $:7 billion (almost $11 billion) from North Sea oil each year - a highly visible sum at a time when world oil prices seem likely to drop.
Yet the figure is still less than 3 percent of gross domestic product. It is also less than 7 percent of government revenue, and the British balance of payments is heading for a surplus in 1983-84 that could reach $:1.5 billion.
Nonetheless, there is cause for concern. In two days the pound lost 2.2 percent of its overall value, dropping to its lowest point ever against the dollar last Tuesday. This followed a fall of about 12 percent in the last weeks of last year and the first weeks of this one. On Thursday morning the pound was worth just under $1.54.
Ten Downing Street realizes full well unless calm prevails, the pound's slide could yet reach out to touch British lives in a number of ways. It could bring forward the date of the next general election. It could cause people to pay higher mortgage rates. It could make new problems for the beleaguered economy.
This was the general situation as traders in the financial markets reacted, as one oil expert put it, ''to short-term fears rather than long-term facts.''
The traders were worried British revenue would drop after the Organization of Petroleum Exporting Countries failed to set production quotas in Geneva Jan. 23 and 24. They were also concerned the Labour Party might win the election. The party has set as one of its aims a deep devaluation of the pound. High interest rates in the United States attract capital away from the pound.
Prime Minister Margaret Thatcher's answer at this writing was to project an impression of studious calm, hoping that the money market storm would play itself out.
She was relying on another long-term factor as well. In her view, lower OPEC oil prices are a boost for the world's economy - and that is, in the long run, good for Britain.
Her chancellor of the Exchequer, Sir Geoffrey Howe, repeated that there was in his view no reason for the pound to fall further. The statement, a highly political one, in fact reflects his government's concern.
Mrs. Thatcher must hold a general election by the spring of 1984. Most analysts predict one in October this year. But the pound's slide increases pressures on her to call one in June, before more weaknesses appear.
One thing she wants to avoid in the election run-up, if at all possible, is another rise in British interest rates. That would mean higher home mortgages and more expensive consumer and industry loans in general.
Already bank rates have risen twice since November, raising questions about Mrs. Thatcher's basic success in lowering inflation. Thus far, the prime minister has allowed the pound to fall rather than have the Bank of England prop it up with sustained buying in the markets. This was preferable, politically, to raising interest rates to attract money back from Europe and the United States.
Meanwhile, banks were watching to see if the flight from the pound would force them to raise interest rates again.