George Kerevan: £ tanks again.
This morning, the £ sank to its lowest level ever against the euro. Should we cheer or cry?
According to the BBC website, “a strong euro is good for the UK economy. It makes imports from the eurozone more expensive, while UK exports become cheaper to those paying for them in euros. This is clearly a boost to the UK manufacturing sector in these difficult times. The eurozone accounts for about 60 per cent of UK exports.”
Alas, this is economic illiteracy.
Recession in the EU means that overall demand for British goods in Europe will decline next year. This is predicted in the Pre-Budget Report: "Recent strong import demand from Europe is not expected to continue in 2009, while recession in the US is also likely to reduce demand for UK exports."
We may also see something called the J-curve effect – things get worse before they get better. A cheaper pound means that those UK manufacturers who can sell to Europe will now get fewer euros.
We should also remember that while the EU is our biggest market, they sell more to us than we sell to them. The UK had a total trade deficit of £32 billion with the EU27 in 2006. This was made up of a trade in goods deficit of £32 billion but also a trade deficit in services of £6 million.
A more expensive euro may reduce some imports, but I’d bet we will go on purchasing EU goods and services because we make so little here. In which case, the more expensive euro will boost UK inflation as well as reduce the available cash we have in our pockets to buy British goods.
According to the BBC website, “a strong euro is good for the UK economy. It makes imports from the eurozone more expensive, while UK exports become cheaper to those paying for them in euros. This is clearly a boost to the UK manufacturing sector in these difficult times. The eurozone accounts for about 60 per cent of UK exports.”
Alas, this is economic illiteracy.
Recession in the EU means that overall demand for British goods in Europe will decline next year. This is predicted in the Pre-Budget Report: "Recent strong import demand from Europe is not expected to continue in 2009, while recession in the US is also likely to reduce demand for UK exports."
We may also see something called the J-curve effect – things get worse before they get better. A cheaper pound means that those UK manufacturers who can sell to Europe will now get fewer euros.
We should also remember that while the EU is our biggest market, they sell more to us than we sell to them. The UK had a total trade deficit of £32 billion with the EU27 in 2006. This was made up of a trade in goods deficit of £32 billion but also a trade deficit in services of £6 million.
A more expensive euro may reduce some imports, but I’d bet we will go on purchasing EU goods and services because we make so little here. In which case, the more expensive euro will boost UK inflation as well as reduce the available cash we have in our pockets to buy British goods.
Labels: economic crisis, George Kerevan
posted by Administrator at
13:44
1 Comments:
Should help with marketing the Homecoming though, particularly since the TV advert won't be shown outside Scotland!
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