The decline of the dollar has become so much a part of the daily news we barely notice it amid the general mayhem. But it is worth a closer glance.

Sheltering behind the dollar is another troubled currency, the pound, and the fall in sterling, though largely unnoticed by the man in the street, is in many ways as dramatic as anything that is happening to the dollar.

The reason sterling's weakness has passed a lot of people by is that the benchmark for most observers is the rate against the dollar - and that, of course, is about the only currency in the world (with the possible exception of the money used in Iceland) where the performance of the pound looks strong. Against almost every other currency of consequence, it looks seriously sick.

Since the rot set in last autumn, the pound has dropped by getting on for 12% against the euro. Its trade-weighted fall, which measures its value against a basket of the currencies of the countries with which we do business, is down by a similar amount.

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To put that in perspective, it is the biggest fall for 15 years, the last time being when sterling was ejected from the Exchange Rate Mechanism way back in Norman Lamont's time as Chancellor of the Exchequer - or, to give it a more contemporary feel, in David Cameron's time as aide to Lamont.

When people head off this weekend for a bit of end-of-season skiing over Easter, they will find an unnerving jump in the cost of that French kir or Austrian gl¸hwein - and the ski passes for that matter. Only in Disneyland will the pound buy as much, and there is probably a moral there somewhere.

It is also weak against the currencies of Asia, however much they try to manipulate things the other way. That means, after a decade in which imports from China seem always to have been getting cheaper, the machine will go into reverse.

A lot of basic goods and clothes will get more expensive. So too will imported foods, which will be particularly hurtful as we are already in the throes of worldwide food and commodity inflation caused by additional demand from the fast-growing and increasingly wealthy Asian nations. A falling pound adds a further layer of pain.

The question now is whether the worst of the fall is over, or might there be more to come. Economists say that in terms of purchasing power - comparative studies by the likes of the OECD, or indeed the Economist's Big Mac index, which relates everything to the cost of a burger - a fall of 15% would be quite far enough.

But there is a dissenting view that says the pound ought to drop until UK exports become competitive again. On this measure, there is still some way to go because in all the years under Labour, productivity has barely improved. The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997. On that basis, the pound has a lot further to fall.

L&G sends out a strong message

The good thing about bad times is that they separate those who know what they are doing from those who should not be on the playing field. When times are booming, most businesses can find a way to make money, and the few that can't nevertheless cling on for an inordinately long time. In bad times, the weak get weeded out more quickly.

Full article here.