If the exchange rate is the measure of a nation's economic virility, then Britain is the skinny kid getting sand kicked in his face.

Sterling has taken a severe beating in the past few weeks as international investors and currency speculators dump pounds in preference for dollars and euros.

Sterling hit a 12-year low yesterday against a trade-weighted basket of currencies, though it later enjoyed a brief respite after US jobs figures showed the American economy wasn't such a muscle-bound specimen either.

Against the euro, the pound is at its weakest since the single currency was launched almost ten years ago. A euro now costs almost 82p and that's in the wholesale markets.

Britons heading for an autumn break on the Continent or planning a skiing holiday are learning the retail cost of a euro is an alpine 85p. Those fleeting months when a pound bought two bucks are over. The pound now buys $1.77 in wholesale markets and $1.68 on the high street.

This of course matters. Not since Harold Wilson insulted the meanest intelligence by claiming the 1967 devaluation of sterling made no difference to “the pound in your pocket” has anyone tried to suggest otherwise. Britain as a nation is poorer. Everything imported becomes more expensive. Remittances out of the UK shrink.

But Britain's dirty little secret is that we rather like a depreciating currency. We got addicted to it for long periods during the postwar years, preferring to see the currency slide rather than make the painful efficiency and structural adjustments necessary to keep up with foreign competitors.

A sinking pound keeps exports competitive, keeps tourists flooding in and helps to boost British asset prices by making them more affordable to foreigners.

No wonder business is ambivalent about it. However, the timing and speed of sterling's slump has wrongfooted and disappointed even those who usually welcome a lurch lower in the currency.

The timing is awkward because it seriously limits the room for manoeuvre on interest rates. It's hard for the Bank of England to cut rates any time soon in the face of imported inflation. The reversal in raw material prices in the past two months is welcome, but the benefit has been partly diluted by the pound's collapse.

The speed of the decline is uncomfortable because it makes nonsense of business plans. All those sales targets and investment proposals based on a $1.90 pound or 75p euro are suddently scrap paper.

It's too early to call the bottom. Sterling is still 20 per cent higher than its low point in 1993, after its ejection from the exchange-rate mechanism, Alliance Bernstein points out.

Only a substantial further fall can rebalance the economy away from consumption and towards exports and investment, it argues.

More spatterings of sand seem all too possible.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive