Looking back at September 16th 1992

Black Wednesday, which occurred on September 16, 1992, was a significant event in the economic history of the United Kingdom. It was a day when the British pound sterling was forced to leave the European Exchange Rate Mechanism (ERM) due to a speculative attack by currency traders. This event had significant consequences for the UK economy and its role in Europe.


In the 1980s, the UK government, led by Prime Minister Margaret Thatcher, pursued a policy of monetarism and economic liberalization. As part of this policy, the government joined the ERM in 1990, which was a system designed to stabilize exchange rates between European currencies. The ERM required member countries to keep their currencies within a specific range against the German mark, which was seen as the anchor currency.

The UK joined the ERM with a high exchange rate for the pound sterling, which made British exports less competitive. In addition, the UK was experiencing high inflation and a large current account deficit, which put pressure on the government to devalue the pound.

Speculative Attack:

In the early 1990s, the German economy was booming, while the UK was struggling with high unemployment and inflation. This led to pressure on the pound sterling, and speculators began betting against the currency, expecting it to be devalued. The Bank of England tried to defend the value of the pound by raising interest rates to 15%, which made it more attractive for investors to hold pounds. However, this move was unsuccessful in deterring the speculative attack.

On September 16, 1992, the Bank of England was forced to withdraw from the ERM and allow the pound to float freely on the currency markets. This caused the value of the pound to plummet, with the currency losing 15% of its value against the German mark and 25% against the US dollar in a matter of hours. The event was dubbed Black Wednesday due to the significant losses suffered by currency traders and investors.


The aftermath of Black Wednesday had significant consequences for the UK economy. In the short term, the devaluation of the pound made imports more expensive, leading to an increase in inflation. The high interest rates also led to a recession, with many businesses struggling to stay afloat.

However, in the longer term, the devaluation of the pound made British exports more competitive, leading to an increase in exports and economic growth. The event also forced the UK government to reassess its economic policies, leading to a move away from monetarism and towards a more pragmatic approach.

Black Wednesday also had wider implications for the UK’s role in Europe. The event undermined the credibility of the ERM and weakened the UK’s position in European negotiations. It also highlighted the differences between the UK and other European countries in terms of economic policies and priorities.


Black Wednesday was a significant event in the economic history of the UK, with far-reaching consequences for the country’s economy and its position in Europe. The event highlighted the challenges of maintaining fixed exchange rates and the risks of speculative attacks by currency traders. While the short-term consequences of Black Wednesday were painful, the event also led to a reassessment of economic policies and a more competitive British economy in the longer term.