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Devaluation also effectively imposes an import duty on imports by adding 18% to their price in Sterling terms. So far the response of CPI to this has been muted - barely rising to 2.6% but presumably this will increase further as the rising cost of imported goods feeds through the supply chain.
Historically most economists regard devaluation as a useful short-term safety valve to reduce the impact of an economic crisis and to facilitate faster recovery. However longer term its benefits erode as increased import costs feed into inflation and output prices.
What is perhaps more remarkable is the degree to which the UK economy has failed to respond to the stimulating effects of such a large devaluation which indicates their are structural problems in the UK economy which devaluation is only masking for the time being.
The other surprising thing is that foreign investors and creditors aren't pulling their assets out of Sterling more rapidly in response to such a massive loss of value. I would expect a massive Sterling crisis when they start to do so to a much larger extent.
A breakdown in Brexit negotiations could be the trigger for such an event posing even greater difficulties for EU exporters to the UK.
Increasingly the end of the A50 period can't come quickly enough for EU industries if it means they will become less exposed to low cost UK competition enabled by Sterling devaluation.
Index of Frank's Diaries
by Frank Schnittger - Nov 19 39 comments
by Frank Schnittger - Nov 7 87 comments
by Oui - Nov 20 4 comments
by Frank Schnittger - Oct 25 20 comments
by Cat - Nov 3 20 comments
by gmoke - Oct 31 5 comments
by Frank Schnittger - Oct 28 17 comments
by Oui - Nov 204 comments
by Frank Schnittger - Nov 1939 comments
by Oui - Nov 161 comment
by Oui - Nov 162 comments
by Oui - Nov 89 comments
by Frank Schnittger - Nov 787 comments
by gmoke - Nov 6
by Cat - Nov 320 comments
by gmoke - Oct 315 comments
by Frank Schnittger - Oct 2817 comments
by Frank Schnittger - Oct 2520 comments
by Cat - Oct 2127 comments
by Frank Schnittger - Oct 1779 comments