1 Pound – United Kingdom

The United Kingdom entered 2008 with a sterling pound that was historically strong, trading near $2.00 against the US dollar. This strength, however, masked underlying vulnerabilities. The economy was heavily reliant on a booming financial services sector and a large current account deficit, making it particularly exposed to the global financial storm that began in 2007. As the crisis intensified with the collapse of Lehman Brothers in September 2008, the UK's position as a major financial hub became a liability, triggering a severe loss of confidence in its currency and banking system.

The currency situation deteriorated dramatically in the latter half of 2008. The pound experienced a sharp and sustained depreciation, falling by over 25% against the dollar and hitting a record low against the euro. This was driven by a "perfect storm" of factors: a rapid flight to the safety of the US dollar, anticipations of deep UK interest rate cuts by the Bank of England to stave off recession, and specific fears over the stability of UK banks, which required unprecedented government bailouts. The market judged that the UK, with its large financial sector and household debt, would be harder hit than many peers.

In response, the authorities prioritized financial stability and economic stimulus over currency defense. The Bank of England slashed interest rates from 5% to a then-record low of 2% by year's end and embarked on quantitative easing in early 2009. While the weak pound exacerbated inflation pressures by making imports more expensive, it provided a crucial shock absorber for the economy by boosting the competitiveness of UK exports. Thus, the 2008 currency crisis was not a standalone event but a core symptom and partial corrective mechanism for the UK's deep financial and economic turmoil.