Question: Since the pound sterling devalued in 1993, it has changed very little relative to the Dmark and its successor, the e. At the same time, the inflation rate in the UK, which used to be about 5% per year higher than Germany, has been about the same (2.5% compared with 2.0%). Yet it is often said that a stronger currency reduces the rate of inflation, while a weaker currency boosts it. Explain how the decision to float the £ in Britain also reduced the rate of inflation. (Hint: what happened to productivity?)