Skip to main content

Trading Down

The latest UK trade numbers are little short of disastrous.

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.

Oops.

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.

Comments

Newmania said…
It is not the prospect of a hung parliament that is spooking the currency markets

It partly is obviously , you spoil your point with this wishful thinking , I know other countries act in ways that have only the form of democracy but are really managed by centrist elites , but we do not that tradition. If you are you seriously arguing we would better off tracking the Euro you are pretty much on your own and I doubt even Clegg would dare suggest such a ridiculous thing . Did you support the Conservative Party whose efforts so damaged them and dished Europe for the right ? I doubt it .

What we need are low taxes , less regulation and ,sadly , higher unemployment, none of which the left will allow. Otherwise I agree with much of what you say
mattydug said…
i agree with newmania about the euro.
unfortunately what is necessary is some pain, all will suffer but to be effective for our economy the public sector will be hurt the most.
the labour mantra about not cutting now and spending more is pure politics and terrible for all of us.

Popular posts from this blog

Post Truth and Justice

The past decade has seen the rise of so-called "post truth" politics.  Instead of mere misrepresentation of facts to serve an argument, political figures began to put forward arguments which denied easily provable facts, and then blustered and browbeat those who pointed out the lie.  The political class was able to get away with "post truth" positions because the infrastructure that reported their activity has been suborned directly into the process. In short, the media abandoned long-cherished traditions of objectivity and began a slow slide into undeclared bias and partisanship.  The "fourth estate" was always a key piece of how democratic societies worked, since the press, and later the broadcast media could shape opinion by the way they reported on the political process. As a result there has never been a golden age of objective media, but nevertheless individual reporters acquired better or worse reputations for the quality of their reporting and

We need to talk about UK corruption

After a long hiatus, mostly to do with indolence and partly to do with the general election campaign, I feel compelled to take up the metaphorical pen and make a few comments on where I see the situation of the UK in the aftermath of the "Brexit election". OK, so we lost.  We can blame many reasons, though fundamentally the Conservatives refused to make the mistakes of 2017 and Labour and especially the Liberal Democrats made every mistake that could be made.  Indeed the biggest mistake of all was allowing Johnson to hold the election at all, when another six months would probably have eaten the Conservative Party alive.  It was Jo Swinson's first, but perhaps most critical, mistake to make, and from it came all the others.  The flow of defectors and money persuaded the Liberal Democrat bunker that an election could only be better for the Lib Dems, and as far as votes were concerned, the party did indeed increase its vote by 1.3 million.   BUT, and it really is the bi

Media misdirection

In the small print of the UK budget we find that the Chancellor of the Exchequer (the British Finance Minister) has allocated a further 15 billion Pounds to the funding for the UK track and trace system. This means that the cost of the UK´s track and trace system is now 37 billion Pounds.  That is approximately €43 billion or US$51 billion, which is to say that it is amount of money greater than the national GDP of over 110 countries, or if you prefer, it is roughly the same number as the combined GDP of the 34 smallest economies of the planet.  As at December 2020, 70% of the contracts for the track and trace system were awarded by the Conservative government without a competitive tender being made . The program is overseen by Dido Harding , who is not only a Conservative Life Peer, but the wife of a Conservative MP, John Penrose, and a contemporary of David Cameron and Boris Johnson at Oxford. Many of these untendered contracts have been given to companies that seem to have no notewo