According to archives that were released recently, John Major was warned by Margaret Thatcher, the longest-serving British Prime Minister, that keeping the United Kingdom in the European exchange rate mechanism (ERM) and declining to decrease interest rates put the economy of the United Kingdom at risk.
At a meeting that was held in January of 1991, Thatcher informed Major that maintaining high interest rates to keep the United Kingdom in the ERM risked replaying the decision of Churchill to retain the parity of the pound at a high level, a move which has been rebuked for intensifying the Great Depression.
The minutes of the meeting that were released from the National Archives stated: “Ms. Thatcher said conditions in the economy were very tough indeed. She believed that there was a danger of repeating Winston Churchill’s historic error.”
However, according to the files, Major, opposed Thatcher by stating that the “current situation was not remotely comparable.”
The ERM was a mechanism that fixed the exchange rates between the members of the European Economic Community ahead of the establishment of a single currency.
The United Kingdom was forced out of the ERM on the 16th of September of 1992, which was later known as the “Black Wednesday,” when the government was not able to defend the price of the sterling.
In an effort to attract investors, the government increased interest rates from 10 percent to 15 percent. However, traders proceeded to sell off the pound and the United Kingdom was out of the ERM by the evening.