How low can sterling go? (TT Mar09 p14-15)

Sterling is down by more than 20% on the trade-weighted index (TWI) over the past year, but its fall against the dollar and the euro has been as deep or even deeper – close to 25%. In the past, sterling declines of this order would rapidly lead to rising prices and a subsequent rise in interest rates to control them, which would weaken the economy and so help keep inflation pressure in check.