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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 - Feb 21 20 comments
by Cat - Feb 18 11 comments
by ATinNM - Feb 6 22 comments
by Oui - Feb 12 16 comments
by Oui - Jan 26 3 comments
by Oui - Feb 14 1 comment
by gmoke - Feb 13
by Frank Schnittger - Feb 5 10 comments
by Frank Schnittger - Feb 2120 comments
by Cat - Feb 1811 comments
by Oui - Feb 175 comments
by Oui - Feb 141 comment
by gmoke - Feb 13
by Oui - Feb 1216 comments
by Oui - Feb 12
by Oui - Feb 86 comments
by Oui - Feb 71 comment
by ATinNM - Feb 622 comments
by Frank Schnittger - Feb 510 comments
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by Cat - Feb 18 comments
by Oui - Feb 1
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by Frank Schnittger - Jan 2936 comments
by Frank Schnittger - Jan 2811 comments
by Oui - Jan 263 comments