Black Wednesday

Part of a series of articles on
UK membership of the European Union (1973–2020)
Accession Treaty of Accession 1972 1972 EC Act 1973 enlargement of the EC
1975 referendum Referendum Act (results)
Treaty amendments Single European Act, 1986 (UK ratification) Maastricht Treaty, 1992 (UK ratification) Treaty of Amsterdam, 1997 (UK ratification) Treaty of Nice, 2001 (UK ratification) Treaty of Lisbon, 2007 (UK ratification) Related: 2011 UK Act on new EU Treaty amendments EU-related British Acts Proposed European Constitution referendum European Union Bill 2004–2005
MEPs for UK constituencies Members 1973–1979 (elected by parliament) Members 1979–1984 (1979 election) Members 1984–1989 (1984 election) Members 1989–1994 (1989 election) Members 1994–1999 (1994 election) Members 1999–2004 (1999 election) Members 2004–2009 (2004 election) Members 2009–2014 (2009 election) Members 2014–2019 (2014 election) Members 2019–2020 (2019 election) Women
Officials and bodies House of Lords EU Committee House of Commons EU Committee Permanent EU Representatives for UK Northern Ireland Executive in Brussels EU Representative in London UK European Commissioners Department for Exiting the European Union
Issues and events Economy The Euro Black Wednesday UK budget rebate Nationality law Euroscepticism in the UK United Kingdom opt-outs from EU legislation Maastricht Rebels Balance of Competences Review
Withdrawal 2015 UK general election 2015–2016 membership renegotiation 2016 EU membership referendum Vote Leave Britain Stronger in Europe Notification of withdrawal 2017 UK general election Brexit negotiations Impact of Brexit Future relationship Withdrawal agreement No-deal Brexit Impact on Irish border Northern Ireland Protocol Parliamentary votes Proposed second referendum 2019 UK general election
EU portal UK portal
v t e

This article is part of a series on
Politics of the European Union
Member states (27)  Austria  Belgium  Bulgaria  Croatia  Cyprus  Czech Republic  Denmark  Estonia  Finland  France  Germany  Greece  Hungary  Ireland  Italy  Latvia  Lithuania  Luxembourg  Malta  Netherlands  Poland  Portugal  Romania  Slovakia  Slovenia  Spain  Sweden Candidate countries Albania Bosnia and Herzegovina Georgia Moldova Montenegro North Macedonia Serbia Ukraine Countries with suspended accession negotiations Turkey Applicant countries Kosovo Special territories Belgium–Germany relations France–Germany relations Germany–Netherlands relations EU 3 Withdrawal from the European Union
Treaties and Declarations Schuman Declaration (1950) Treaty of Paris (1951) Europe Declaration (1951) Spaak Report (1956) Treaty of Rome (1957) Euratom Treaty (1957) Merger Treaty (1965) Solemn Declaration (1983) Single European Act (1986) Maastricht Treaty (1992) Treaty of Amsterdam (1997) Treaty of Nice (2001) Berlin Declaration (2007) Treaty of Lisbon (2007) Article 7 Article 50 Opt-outs Treaties of accession 1972, 1979, 1985, 1994, 2003, 2005, 2011 Treaties of succession 1984, 2020 Other treaties Schengen Agreement (1985) European Economic Area Agreement (1992) Abandoned treaties and agreements European Constitution (2004) UK membership renegotiation (2015–2016)
Executive institutions European Council President: Michel (ALDE) Parties List of meetings European Commission Von der Leyen Commission President: Von der Leyen (EPP) Vice Presidents College of Commissioners Civil Service Secretary-General: Juhansone
Legislative institutions Legislative procedure Council of the EU Presidency Hungary (July–December 2024) Configurations GAC FAC ECOFIN Eurogroup AGRIFISH EPSCO COMPET TTE ENVI JHA EYC Voting Secretariat Secretary-General: Thérèse Blanchet Directorates-general Council preparatory bodies COREPER Council Working Parties European Parliament (Members) President: Metsola Largest groups EPP (Manfred Weber) S&D (Iratxe García) Member of the European Parliament 10th session (2024–2029) Bureau Vice Presidents Quaestor Conference National parliaments
Judicial institutions Court of Justice of the EU European Court of Justice Members Advocates General Rulings General Court
Auditory institutions European Court of Auditors European Court of Auditors Other auditory bodies Internal Audit Service of the Commission Committee on Budgetary Control of the Parliament Economic and Financial Affairs configuration of the Council Anti-Fraud Office Public Prosecutor's Office
European Central Bank President Lagarde ESCB EMU Euro banknotes Euro coins
Other bodies European Investment Bank Group Investment Bank Investment Fund EIB Institute European Stability Mechanism European Stability Mechanism European University Institute European University Institute Unified Patent Court Unified Patent Court Agencies, decentralised independent bodies and joint undertakings Decentralised agencies of the EU Single market agencies CFSP agencies AFSC agencies ESFS European Supervisory Authorities SRM bodies Executive agencies of the EU Euratom agencies Decentralised independent bodies of the EU European Institute of Innovation and Technology European Public Prosecutor's Office Corporate bodies of the EU European Data Protection Board Authority for European Political Parties and European Political Foundations Joint undertakings of the EU of the Euratom Other independent bodies European Data Protection Supervisor European Ombudsman Advisory bodies European Committee of the Regions European Economic and Social Committee Political and Security Committee European Union Military Committee EU/ESA Space Council Inter-institutional bodies Publications Office of the European Union European External Action Service European Personnel Selection Office Anti-Fraud Office European Administrative School
Euratom Euratom members  Austria  Belgium  Bulgaria  Croatia  Cyprus  Czech Republic  Denmark  Estonia  Finland  France  Germany  Greece  Hungary  Ireland  Italy  Latvia  Lithuania  Luxembourg  Malta  Netherlands  Poland  Portugal  Romania  Slovakia  Slovenia  Spain  Sweden Associated states  Switzerland  United Kingdom Nuclear power in the European Union
Economic and Monetary Union Eurozone members Austria Belgium Croatia Cyprus Estonia Finland France Germany Greece Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Portugal Slovakia Slovenia Spain Eurogroup President Paschal Donohoe Other currencies in use Bulgarian lev Czech koruna Danish krone Hungarian forint Polish złoty Romanian leu Swedish krona ERM II Enlargement of the eurozone Non Euro countries relationship to Euro Bulgaria Czechia Denmark Hungary Poland Sweden Romania
Schengen Area  Austria  Belgium  Bulgaria  Croatia  Czech Republic  Denmark  Estonia  Finland  France  Germany  Greece  Hungary  Italy  Latvia  Lithuania  Luxembourg  Malta  Netherlands  Poland  Portugal  Romania  Slovakia  Slovenia  Spain  Sweden Non-EU members  Iceland  Liechtenstein  Norway  Switzerland Prüm Convention Schengen Information System Visa Information System Visa policy of the Schengen Area Non-Schengen area EU member states  Cyprus  Ireland (Opt-out)
European Economic Area EEA members Austria Belgium Bulgaria Croatia (provisional member) Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden Non-EU members  Iceland  Liechtenstein  Norway Topics EEA Joint Committee EEA National Identity cards Microstates and the European Union
Elections Elections to the European Parliament European parties European foundations Political groups of the European Parliament Spitzenkandidat Constituencies Apportionment Referendums related to the EU European elections 1979 1984 1989 1994 1999 2004 2009 2014 2019 2024 (latest election) Elections in EU member states Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden
Law Acquis Primacy (ECJ Case 6/64) Subsidiarity Regulation Directive Decision Recommendation Fundamental Rights
Policies and issues Budget Customs Union Free Trade Agreements European Single Market Area of FS&J Policies Agricultural Energy Fisheries Regional Citizenship Passports of the European Union Identity Pro-Europeanism Euroscepticism European banking union European Banking Supervision Single Resolution Mechanism Capital Markets Union European System of Financial Supervision Integration Supranationalism European Federation Multi-speed Europe Enhanced cooperation
Foreign relations High Representative Josep Borrell Ext. Action Service Foreign Policy Defence Policy Foreign relations of EU member states Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden Argentina–European Union relations Armenia–European Union relations Australia–European Union relations Brazil–European Union relations Canada–European Union relations China–European Union relations European Union–NATO relations Georgia–European Union relations Iceland–European Union relations Kazakhstan–European Union relations Japan–European Union relations Mexico–European Union relations Moldova–European Union relations Norway–European Union relations Russia–European Union relations Switzerland–European Union relations Turkey–European Union relations Ukraine–European Union relations United Kingdom–European Union relations (History) Post-Brexit United Kingdom relations with the European Union Brexit United States–European Union relations Common Travel Area (Ireland) Microstates and the European Union European Union and the United Nations European Union Association Agreement G7 G20
Defunct bodies European Communities (1958–1993) European Coal and Steel Community European Economic Community European Community Western European Union Convention on the Future of Europe
European Union portal Other countries
v t e

This article is part of a series about John Major
Electoral history MP for Huntingdon 1990 budget Prime Minister of the United Kingdom Premiership First ministry and term (November 1990 – April 1992) 1990 leadership election Ministry Citizen's Charter Charter Mark Cones Hotline Early 1990s recession Gulf War 1992 general election Second ministry and term (April 1992 – May 1997) Ministry Black Wednesday National Lottery Further and Higher Education Act 1992 Grant-maintained schools Maastricht Treaty rebels Northern Ireland peace process Downing Street mortar attack Downing Street Declaration 1993 reviews of the British honours system Council Tax Child Support Agency 1993 vote of confidence Back to Basics Privatisation of British Rail Criminal Justice and Public Order Act 1994 1995 Conservative Party leadership election The Cullen Reports Cash for Questions Committee on Standards in Public Life Arms-to-Iraq affair Scott Report United Kingdom BSE outbreak Wirral South by-election Resignation Honours Bibliography The Autobiography More Than a Game My Old Man
v t e

Black Wednesday, or the 1992 sterling crisis, was a financial crisis that occurred on 16 September 1992 when the UK Government was forced to withdraw sterling from the (first) European Exchange Rate Mechanism (ERM I), following a failed attempt to keep its exchange rate above the lower limit required for ERM participation. At that time, the United Kingdom held the Presidency of the Council of the European Union.

The crisis damaged the credibility of the second Major ministry in handling of economic matters. The ruling Conservative Party suffered a landslide defeat five years later at the 1997 general election and did not return to power until 2010. The rebounding of the UK economy in the years following Black Wednesday has been attributed to the depreciation of sterling and the replacement of its currency tracking policy with an inflation targeting monetary stability policy.^[1][2]

When the ERM was set up in 1979, the United Kingdom declined to join. This was a controversial decision, as the Chancellor of the Exchequer, Geoffrey Howe, was staunchly pro-European. His successor, Nigel Lawson, whilst not at all advocating a fixed exchange rate system, nevertheless so admired the low inflationary record of West Germany as to become, by the mid-eighties, a self-styled "exchange-rate monetarist", one viewing the sterling–Deutschmark exchange rate as at least as reliable a guide to domestic inflation – and hence to the setting of interest rates – as any of the various M0-M3 measures beloved of those he labelled as "Simon Pure" monetarists. He justified this by pointing to the dependable strength of the Deutsche Mark and the reliably anti-inflationary management of the Mark by the Bundesbank, both of which he explained by citing the lasting impact in Germany of the disastrous hyperinflation of the inter-war Weimar Republic. Thus, although the UK had not joined the ERM, at Lawson's direction (and with Prime Minister Margaret Thatcher's reluctant acquiescence), from early 1987 to March 1988 the Treasury followed a semi-official policy of "shadowing" the Deutsche Mark.^[3] Matters came to a head in a clash between Lawson and Thatcher's economic adviser Alan Walters, when Walters claimed that the Exchange Rate Mechanism was "half baked".^[4]

This led to Lawson's resignation as Chancellor; he was replaced by former Treasury Chief Secretary John Major who, with Douglas Hurd, the then Foreign Secretary, convinced the Cabinet to sign Britain up to the ERM in October 1990, effectively guaranteeing that the UK Government would follow an economic and monetary policy preventing the exchange rate between the pound and other member currencies from fluctuating by more than 6%. On 8 October 1990, Thatcher entered the pound into the ERM at DM 2.95 to £1. Hence, if the exchange rate ever neared the bottom of its permitted range, DM 2.773 (€1.4178 at the DM/Euro conversion rate), the government would be obliged to intervene. In 1989, the UK had inflation three times the rate of Germany, higher interest rates at 15%, and much lower labour productivity than France and Germany, which indicated the UK's different economic state in comparison to other ERM countries.^[5]

From the beginning of the 1990s, high German interest rates, set by the Bundesbank to counteract inflationary effects related to excess expenditure on German reunification, caused significant stress across the whole of the ERM. The UK and Italy had additional difficulties with their double deficits, while the UK was also hurt by the rapid depreciation of the United States dollar – a currency in which many British exports were priced – that summer. Issues of national prestige and the commitment to a doctrine that the fixing of exchange rates within the ERM was a pathway to a single European currency inhibited the adjustment of exchange rates. In the wake of the rejection of the Maastricht Treaty by the Danish electorate in a referendum in the spring of 1992, and an announcement that there would be a referendum in France as well, those ERM currencies that were trading close to the bottom of their ERM bands came under pressure from foreign exchange traders.^[6]

In the months leading up to Black Wednesday, among many other currency traders, George Soros had been building a huge short position in sterling that would become immensely profitable if the currency fell below the lower band of the ERM. Soros believed the rate at which the United Kingdom was brought into the Exchange Rate Mechanism was too high, inflation was too high (triple the German rate), and British interest rates were hurting their asset prices.^[7]

The UK government attempted to prop up the depreciating pound to avoid withdrawal from the monetary system the country had joined only two years earlier. John Major authorised the spending of billions of pounds worth of foreign currency reserves to buy up sterling being sold on the currency markets. These measures failed to prevent the pound falling below its minimum level in the ERM. The Treasury took the decision to defend sterling's position, believing that to devalue would promote inflation.^[8]

Remarks by Bundesbank President Helmut Schlesinger triggered the attack on the pound.^[9] An interview of Schlesinger by the Wall Street Journal was reported by the German financial paper Handelsblatt.^[10] Schlesinger told the journalist that "a more comprehensive realignment" of currencies would be needed, following a recent devaluation of the Italian lira.^[11] On the evening of Tuesday, 15 September 1992, the headline was already circulating. Schlesinger said he thought he was speaking off the record. He later wrote that he stated a fact and this could not have triggered the crisis.^[12] This remark hugely increased pressure on the pound leading to large sterling sales.^[9][13]

Currency traders began a massive sell-off of pounds on Wednesday, 16 September 1992. The Exchange Rate Mechanism required the Bank of England to accept any offers to sell pounds. However, the Bank of England only accepted orders during the trading day. When the markets opened in London the next morning, the Bank of England began their attempt to prop up their currency, as decided by Norman Lamont, the chancellor of the exchequer, and Robin Leigh-Pemberton, governor of the Bank of England. They began accepting orders of £300 million twice before 8:30 am, but to little effect.^[14] The Bank of England's intervention was ineffective because traders were dumping pounds far faster. The Bank of England continued to buy, and traders continued to sell, until Lamont told Prime Minister John Major that their pound purchasing was failing to produce results.^[15]

At 10:30 am on 16 September, the British government announced an increase in the base interest rate, from an already high 10%, to 12% to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15%, dealers kept selling pounds, convinced that the government would not keep its promise. By 7:00 pm that evening, Lamont announced Britain would leave the ERM and rates would remain at the new level of 12%; however, on the next day the interest rate was back to 10%.^[15]

It was later revealed that the decision to withdraw had been agreed at an emergency meeting during the day between Lamont, Major, foreign secretary Douglas Hurd, president of the Board of Trade Michael Heseltine, and home secretary Kenneth Clarke (the latter three all being staunch pro-Europeans as well as senior Cabinet ministers),^[16] and that the interest rate hike to 15% had only been a temporary measure to prevent a rout in the pound that afternoon.^[17]

Other ERM countries such as Italy, whose currencies had breached their bands during the day, returned to the system with broadened bands or with adjusted central parities.^[18]

Some commentators, following Norman Tebbit, took to referring to ERM as an "Eternal Recession Mechanism"^[19] after the UK fell into recession during the early 1990s. While many people in the UK recall Black Wednesday as a national disaster that permanently affected the country's international prestige, some Conservatives claim that the forced ejection from the ERM was a "Golden Wednesday"^[20] or "White Wednesday",^[21] the day that paved the way for an economic revival, with the Conservatives handing Tony Blair's New Labour a much stronger economy in 1997 than had existed in 1992^[21] as the new economic policy swiftly devised in the aftermath of Black Wednesday led to re-establishment of economic growth with falling unemployment and inflation.^[22] Monetary policy switched to inflation targeting.^[23][24]

The Conservative Party government's reputation for economic excellence had been damaged to the extent that the electorate was more inclined to support a claim of the opposition of the time – that the economic recovery ought to be credited to external factors, as opposed to government policies implemented by the Conservatives. The Conservatives had recently won the 1992 general election, and the Gallup poll for September showed a small lead of 2.5% for the Conservative Party. By the October poll, following Black Wednesday, their share of the intended vote in the poll had plunged from 43% to 29%.^[25] The Conservative government then suffered a string of by-election defeats which saw its 21-seat majority eroded by December 1996. The party's performances in local government elections were similarly dismal during this time, while Labour made huge gains.

Black Wednesday was a major factor in the Conservatives losing the 1997 general election to Labour,^{[citation needed]} who won by a landslide under the leadership of Tony Blair. The Conservatives failed to gain significant ground at the 2001 general election under the leadership of William Hague, with Labour winning another landslide majority. The Conservatives did not take Government again until David Cameron led them to victory in the 2010 general election, 13 years later. Five years later in 2015, the party won its first overall majority 23 years after its last in 1992, five months before the crisis.

George Soros made over £1 billion in profit by short selling sterling.^[26]

In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.14 billion,^[27] which was revised to £3.3 billion in 2005, following documents released under the Freedom of Information Act (earlier estimates placed losses at a much higher range of £13–27 billion).^[28] Trading losses in August and September made up a minority of the losses (estimated at £800 million) and the majority of the loss to the central bank arose from non-realised profits of a potential devaluation. Treasury papers suggested that, had the government maintained $24 billion foreign currency reserves and the pound had fallen by the same amount, the UK might have made a £2.4 billion profit on sterling's devaluation.^[29][30]

• Impossible trinity – Trilemma in international economics
• 1999–2002 sale of United Kingdom gold reserves
• Sterling crisis (disambiguation), other currency crises in British history

• Budd, Alan. "Black Wednesday-A Re-examination of Britain's Experience in the Exchange Rate Mechanism." IEA Occasional Paper 135 (2005). online
• Bustos, Sebastian, and Martin Rotemberg. "Elasticity Pessimism: Economic Consequences of Black Wednesday." (2017). online
• Gottschalk, Sylvia. "From black Wednesday to Brexit: Macroeconomic shocks and correlations of equity returns in France, Germany, Italy, Spain, and the United Kingdom." International Journal of Finance & Economics 28.3 (2023): 2843-2873. online
• Roberts, Richard Whitfield, William Keegan, and David Marsh. Six days in September: Black Wednesday, Brexit and the Making of Europe (OMFIF Press, 2017). ISBN 9780995563636
• Truman, Edwin M. Economic Policy and Exchange Rate Regimes: What Have We Learned in the Ten Years since Black Wednesday? (LSE Financial Markets Group, 2002). online
• Ward, David. "Black Wednesday 30 years on." (2022). online
• Williams, Ben. "Black Wednesday: thirty years on." Political Insight 13.3 (2022): 22-25. online

• Black Wednesday, bbc.co.uk. Retrieved 11 January 2017.
• open.edu 24, September 2009 Archived 28 May 2010 at the Wayback Machine, Martin Upton, head of the Centre for Financial Management at The Open University Business School tells Ione Mako about the upside of Black Wednesday.
• Eichengreen, Barry; Naef, Alain (2022). "Imported or Home Grown? The 1992-3 EMS Crisis". Journal of International Economics. Cambridge, MA. doi:10.3386/w29488. Our analysis focuses on a neglected factor in the crisis: the role of the weak dollar in intra-EMS tensions.