At 141 years old, St. Pancras railway station is London's new, hip gateway to Europe. Thanks to a recent billion-dollar refit, passengers awaiting high-speed trains to Paris or Brussels can sip champagne at the continent's longest bar, or eat oysters and caviar at a fine-dining restaurant. With the value of the pound plummeting, though, Britons heading to Europe are not exactly in a celebratory mood. Trips to Paris used to involve "a stroll around the shops to see if I could pick up some nice Parisian fashion," grumbles Jemima, a 35-year-old sales professional on her way to the French capital late one January afternoon. "But not now." Dashing to catch his train to Brussels, company director Andrew Cowgill thinks Britons have even begun "questioning whether they want to go" to Europe for vacation. (See 10 things to do in London.)
The strength of the pound has long been a source of British pride the word "sterling" has come to describe something of the highest standard. When the pound plunges, as it did in 1976 and in 1992, the damage to the British psyche is almost as far-reaching as the impact on the economy. And right now sterling's losing its shine. In the past year, the U.K. currency has lost about a fifth of its value against the euro, the currency used in much of the rest of Europe, and 30% against the dollar. Causes aren't hard to come by. Worries over Britain's fast-shrinking economy, plunging interest rates, a wobbly banking sector and creaking government finances have driven traders to dump the pound. "I would urge you to sell any sterling you might have," Jim Rogers, once a business partner of George Soros and now chairman of a Singapore investment company, told Bloomberg on Jan. 20 just before the pound hit a 23-year low. "I hate to say it, but I would not put any money in the U.K." (See pictures of the financial crisis in London.)
Having grown faster than Europe's other big economies over the past decade, British GDP will shrink more this year, estimates the E.U. Brits have begun comparing themselves to Iceland, another north Atlantic island buffeted by financial turmoil. When squatters were discovered living in two $20 million Park Lane mansions, it was taken as a powerful reminder of the recessions of the 1970s and 1980s. "There will be lots more people like me in the coming months," said one of the squatters. Britain's opposition Conservative Party says things could get so bad that the country might have to go, cap in hand, to the International Monetary Fund.
That feeling of impending doom is speeding the collapse in sterling's value, and prompting renewed discussion about whether Britain should ditch the pound for the euro, which this month celebrated its first 10 years.
The British public, long a Euro-skeptic bunch, are having none of it. According to a January poll by ICM for the BBC, 71% of Britons remain opposed to adopting Europe's single currency; more than two-thirds said the pound's slide made no difference to their thinking. "There's a long sentimental attraction to a coinage that has been around for such a large part of our history," says Nicholas Mayhew, a professor of monetary history at the University of Oxford's Ashmolean Museum. "I'd be surprised if all that is lost in a matter of months."
But sentimental attachment won't fix the problems the country faces today. A feeble pound should eventually give Britain's depressed exporters a boost, but that might not happen until 2010. Because the downturn is global, most manufacturers expect export orders to fall further in the coming months, according to the British employers' organization, the CBI. In the meantime, British holidaymakers used to vacationing in France or Spain are making plans for breaks closer to home. Outside the Bank of England, which moved to its present central London site in 1734, one oil-industry worker with a fondness for European travel says he'll "just sit tight" until the pound gets stronger again. Behind him, the city's buses shuttle workers home, with posters on their sides trumpeting the latest movie releases: Slumdog Millionaire, Seven Pounds, The Broken. They almost read like signs of the times.