from The Conversation– this post authored by Alexander Tziamalis, Sheffield Hallam University

Fifty years ago then-prime minister Harold Wilson made the decision to devalue the pound in a bid to tackle the UK’s flagging economy. Overnight the government changed the value of the pound from US$2.80 to US$2.40 – a 14% drop.

Today, the UK government is beset with a similar issue. Although, this time the fall in the pound is not entirely of its own making – it is a consequence of the Brexit vote. Nonetheless, since the UK’s decision to leave the EU, sterling has dropped 14% against the currencies that the UK trades the most with.

This is having some serious knock-on effects on the UK economy. So far, attention has focused on the dropped 14% that it has caused. The key measure, CPI (the consumer prices index), has been rising since the Brexit vote (although it remained unchanged in July thanks to falling fuel prices offsetting a rise in food, clothing and other household goods).

A much bigger issue is how the fall in sterling will affect household and private sector spending in the longer-term. And central to this lies the uncertainty that a confused government bestows upon the UK economy.

Inflation is a cause of harmful uncertainty in the economy and it even acts as a hidden tax if HMRC tax brackets are not updated regularly. It also reduces the real disposable income of households, making the pound in your pocket feel less valuable.

But the level of inflation the UK is experiencing is far from catastrophic. If seen historically, it is still rather on the low side. Average inflation in the last 60 years has been around 5.5%. In the last 20 years, when fighting inflation became a priority for the UK government, the figure has been around 2.6%.

In fact, the official mission of the Bank of England is not to eliminate inflation but to keep it around 2%. A reason for this is that a low level of inflation is thought to stimulate the economy. It means consumers are buying things, businesses investing and there’s a healthy supply of affordable credit from the banking sector – all important contributors to economic growth.