Despite the fastest and largest depreciation of Sterling in history, British exports in January fell by roughly £1.6 billion: a near 7% fall. The monthly trade gap between the value of our exports versus the value of our imports is now just shy of £8 billion. Exports in January were therefore just below £20 billion, with imports topping £27 billion.
This should not be happening. Britain has deliberately chosen to devalue its currency in the international markets "in order to maintain competitiveness", which is to say to allow us to avoid making the unpleasant decisions that would actually maintain competitiveness.
The spectacular failure that these latest trade numbers represent shows that the policy of the weak Pound is not working. Getting the UK out of this mess just gets harder. It is not the prospect of a hung parliament that is spooking the currency markets, it is the fact that neither Labour nor the Conservatives have any idea about how to address the situation. The Tory policy of a soft Pound has already run its course, while Labour spending policies are destroying the credit of the whole country.
The other day Vince Cable pointed out the instability in the housing market. That now must be a huge concern for the banking system. A slow down in the mortgage credit market is already having a braking effect on house prices. As I have warned before, the market is significantly overvalued on most historic measures when one factors in average historic interest rates. It seems possible, even probable, that the increase in unemployment and the steadily tightening of interest rates will cause a break down- and that would have further negative impact on the UK banking system. These latest trade numbers are a warning that the UK is not able to rebalance its economy and reduce its debts through enhanced earnings. Actual debt repayment is going to be required: and that implies a further significant economic recession.
Some might say that the reason that the UK is not exporting its way out of trouble is because the problems of some Eurozone countries has depressed the value of the single currency. Of course that is true, but Sterling has underperformed even the Euro in recent weeks. Even despite this, even despite every stimulus , the British economy is performing listlessly at best. Our failure to tackle our long term structural problems, our firm belief that adopting the Euro was either impossible or unwise has now brought us to the end of the road.
A full blown Sterling crisis is just around the corner.
By the end of it, the UK will be forced to seriously consider whether going it alone has been a mistake. All those who have been contemptuous of those- like myself- who regarded Euro entry as a positive policy goal for the UK, may now see why we wanted to join in the first place. Of course now, the UK will face at least a decade of major economic restructuring even to get close to being able to join- if we are lucky. Perhaps by the end of it we might be fit to join, but much sooner than that decade, the politicians will perhaps at last understand the fact that the UK paid far too high a price to maintain its independent currency. The next year will see a fall from grace that will challenge every political assumption about currency policy, and may lead to a significant realignment of views across the political spectrum.