Sterling had joined the mechanism at a rate widely regarded as too strong, while UK inflation and unemployment argued for lower interest rates than the band required. Speculators judged that the political cost of defending the floor would eventually exceed the political cost of leaving.
On 16 September 1992 the authorities raised the base rate from 10% to 12% and announced a further increase to 15%, while selling reserves heavily. Sterling left the mechanism that evening and the second rise was cancelled. The episode is the standard illustration of the point made under currency-peg: a defended rate fails when defending it costs more domestically than abandoning it.
Sterling fell sharply afterwards, UK rates came down, and the economy recovered over the following years, which is why the day is now debated as much as it is regretted.
Example: the official cost to UK reserves was later estimated by the Treasury at around GBP 3.3bn. Traders positioned short sterling against the mark profited on a move the authorities had publicly promised would not happen.
Related: currency-peg, central-bank-intervention, cable, fx-reserves