Sterling heading towards uncertain future

The recent boost in the Sterling Exchange rates might only be shortlived. A weak Pound Sterling is the only way for the UK to regain economic power, says Neil Mellor, Forex expert at the Bank of New York Mellon, in the FTD from 10/26/10.

After yesterdays announcement by Standard&Poors to lift UK’s rating from “AAA negative” to “AAA stable”, and the Office of National Statistic’s announcement of a 3rd quarter GDP growth estimation of 0.8%, the Pound won significantly against the major currencies for the first time in months.

Gherkin, City of London (taken 2010)

Photograph: Bloomberg/Bloomberg via Getty Images

This looks likely to delay quantitative easing (QE) by the Bank of England, says Jonathan Loynes of Capital Economics in the FTD. Therefore, the pound might be in for further trouble, as many economists see the need for further QE by the Bank of England. This in return would devaluate investements in the UK, so would this be the right strategy for long-term economic recovery?

Yes, says Neil Mellor, as a weak Pound Sterling would support the British economy which is taking beating after beating right now. I personally have some doubts in that concern, because a weak national currency primarily supports the export of goods – but which goods does the UK have to export on a large and economically significant basis? Its biggest and most important industry still is the financial services industry, which had no small part in the 2007/2008 financial crisis and which is right now putting the pound under pressure by speculating on whether or not there will be more QE…

For further information on the recent Sterling jump, see these AFP-bulletins:  1 2

What do you think?

-B-

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4 Responses to Sterling heading towards uncertain future

  1. rudi2020 says:

    Something I didnt know about UK exports was posted in the Guardian (02/10)

  2. bravenewloock says:

    Wow, thanks! I am especially amazed about the “Cars” section! Still, compared to Germany’s 2009 estimated 1.1 TRILLION of exports…(http://www.dihk.de/inhalt/download/ahk_expertenindex_08.pdf)

  3. olexa5 says:

    Good efford there.
    For a more in depth analysis, visit the ‘Office for National Statistics’ (http://www.statistics.gov.uk/downloads/theme_economy/mq1010q2.pdf)

    Under the section ‘Manufacture of coke,petroleum products and nuclear fuel’ on page 8 one can see the following development of ‘Manufacture of refined petroleum products’ from 2007 to 2009 and 2010 Q1 and Q2.

    10 742 –> 16 796 –> 12 961 –> 8 246. This would be a decrease of approximately 23%.

    Surprsingly, this fits quite well to the overview above. But the figures for 2010 are already higher and 8 246 is only the sum of Q1 and Q2. I could imagin it to increase in total this year, as we still aren’t over the winter. Thus, I’m not quite sure if the export decrease was caused by an expensive sterling or not rather by the overall global economic downturn.
    Still, thanks for that spark off.

  4. bravenewloock says:

    True indeed, thanks, but I was thinking more along the lines that the UK never had any really significant exporting power in the younger history, as it has no significant natural resources and no significant manufacturing industries (anymore). See GDP and industries breakdowns on http://www.statistics.gov.uk/downloads/theme_compendia/AA2007/AA2007.pdf

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