Sterling has been in apparent freefall of late, as currency traders have looked at the UK economy with increasing pessimism. Left Foot Forward explains what a falling pound means for the UK.
Following the announcement at the weekend that the UK was to lose its triple AAA credit rating, it was expected that the pound would take a pummeling on the currency markets this week.
And initially it did.
Yesterday Sterling fell against the dollar to $1.5073 – it’s lowest level since summer 2010.
As yesterday’s trading went on the pound rallied slightly to 1.16 versus the Euro.
As of lunchtime today (Tuesday 26th) £1 buys 1.1574 Euros.
But why does it matter?
A cheaper pound bodes well for exporters, who are able to target the overseas market with competitive prices. Plenty of countries with struggling economies would like nothing more than a weak exchange rate in order to export their way back to prosperity.
This is one reason why the Japanese Yen is currently being deliberately depreciated by Tokyo.
To cite an example of how a falling pound is welcomed by sections of the business community, FT economic commentator Martin Wolf greeted the news that Sterling was falling rapidly thus: “Sterling is falling. Hurrah! The economy calls for a further depreciation.”
The downside is that, as real incomes fall (and demand falls with it), even a significantly lower pound may not be sufficient to fill the export order books of British businesses. The benefits of a weaker currency may be offset by weakened demand in important export markets.
The depreciation in sterling is good news for the tourist industry, however; and it may even encourage an outflow of migrant workers from the UK, reducing the immediate pressure on unemployment numbers.
And yet the fall in Sterling will cause import prices to rise, impacting those businesses who need to import raw materials.
Ultimately, the most noticeable impact will be on working people whose take home pay has not kept pace – prices have already risen at a rate faster than incomes for the past four years, and incomes for the squeezed middle are now at the same level as they were in 2002/03.
And the cause of the drastic fall in the value of the pound?
As Larry Elliot writes in the Guardian:
“Investors have not suddenly woken up to the idea that Britain is a flat-lining economy with a twin deficit problem. They have known that for some time. The difference is that a year ago there were other more pressing things to worry about. Now there are not. That makes the pound a big sell.”
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21 Responses to “Why is the pound falling and does it matter?”
Mick
Labour people bitching and whining about the Pound. After their handling of the economy worsened our chances during the credit crunch, by lacking funds in the Treasury and selling off 2/3 of all our gold at jumble sale prices! That last one right during the boom times.
Great stuff. Pure class. And now people in Labour get behind Ed Balls and his howler money Red pals, who screamed at Mr. Osbourne in the House for not ramping spending even further. The kind of thing Balls himself did to get Britain INTO this mess.
Turns out we lost our triple-A by not getting to grips ENOUGH. State handouts are £208 billion a year and the private sector could do with some tax cuts to grow.
(THAT’S one thing Labour should have done – cut taxes to cut supplementary benefits and stuff. But then, left wing ballcocks love reliance on the State. Look at their love of Keynsian economics, dictating that State has the responsibility to get you a job.)
There’s a whole lot of mess to clear up, not helped by constant left wing bitching, just because George Osbourne is a Tory.
Honestly, there are no swear words foul enough to hurl at people in Labour. And even then, I’d come a cropper as the new Left have hate and names down to a fine art. (Some of them are now even legal terms.)
Mick
“Ed Balls and his howler MONKEY Red pals”, it should say. But still, left wing ponces still howl about money they can rarely manage.
Newsbot9
That’s right, keep moaning that your right don’t have all the money. Keep praising your casino banker gods!
Keep on backing your Tories, who called for less bank regulation. Worse than Labour, well done (Takes work!). And keep on lying about our AAA being cut because you didn’t kill enough, it’s because “Plan A” is not working. A credible plan – one which will actually LOWER rather than RAISE the debt as you’re demanding…
Of course there’s no attack you won’t make on anyone outside your ideology. Keep whining about the poor being alive!
Newsbot9
Keep on talking up your wonderful Tory plan to pay more tax, have less services AND a higher debt. Keep trying to nuke the greenhouse.
Newsbot9
“Rises”
Ah yes, seven years and counting of sub-inflation rises and massive job losses. But it’s never enough
Keep lying – the biggest costs are housing, utilities, transport and food.
Your argument is we need a failing economy, Torynomics, It’s not working. Satanists like you have failed, time to fix things. Time to take away the NON-kenysian pork-barrel projects and to re-instant cost-saving measures.
And of course deporting serious criminals like you.