Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Devaluation is not entirely bad, else no one would practice "competitive devaluation": It will make locally produced goods somehow more competitive than imported ones, so a temporary boost to British agriculture and manufacturing.

The rub is that it could be largely offset by the dependency on imported goods: starting with food, but also energy (petrol for cars, jet fuel for Easy Jet...) which will translate into "imported inflation" and make many things that are taken for granted today more, more expensive tomorrow, such as holidays abroad.

As I wrote earlier, it like a more frugal life ahead for many Britons.

This is bound to stoke xenophobia and resentment towards Johnny Foreigner, which will push more people to leave. I don't see this as a good time to relocate to the UK.

by Bernard (bernard) on Thu Jul 20th, 2017 at 08:33:29 PM EST
[ Parent ]
Indeed, and one of the reasons the EU may be forced to impose tariffs on UK exports post Brexit is that EU industries could be fatally undermined by UK competitors benefiting from a massive Sterling devaluation. Arguably, one of the reasons the UK economy has not yet gone into recession is that it is benefiting from the current Sterling devaluation, looser monetary policy, and a favourable external environment.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jul 20th, 2017 at 08:47:07 PM EST
[ Parent ]
In other words, momentum favors the UK's purported economic stability in spite of A50 delivery just four months ago: It takes less time to turn a Titanic than ONS (or NBER) need to recognize a "recession." Wait twenty months more the press to realize GBP savings (propping up business) are exhausted.

That's a mundane description of the incongruity of current experiences and gov't. posturing on the "benefits" of an austerity policy that's dogged the nation since '09.

More to the point occasionally addressed here, UK gov't cannot control the actions of every interested party (beside the EC), certainly not "the market." Price of GBP is tanking in part because global investors no longer want to hold as much in reserve. This store of value is losing lustre.

Today's headlines demonstrate until they don't.

Dollar at 13-month lows amid euro surge to near 2-year highs

Euro jumps on fall tapering prospects, U.S. dollar sinks

Draghi said the risks to the growth outlook in the euro zone are broadly balanced and the region is now enjoying a "robust" recovery. He also noted that growth has not yet translated into `stronger inflation dynamics', pointing out that headline inflation is being dampened by weak energy prices.


Apart from crude, you might ask yourself. "Self, with a strong EUR, what will EU26 buy from UK that it cannot trade among themselves?"

Diversity is the key to economic and political evolution.

by Cat on Thu Jul 20th, 2017 at 11:04:03 PM EST
[ Parent ]
One of my problems with much modern economic reporting is the focus on the very short term  - as if the "confidence fairy" was going to cause an immediate recession post the Brexit referendum result.  Like Krugman, I never saw how that was going to happen.

Instead we had lots of decisions being made by lots of businesses to defer future investment plans in the UK till things got clarified followed by contingency plans to invest within the EU27 instead in order to safeguard market access.  It takes a couple of years for all those micro decisions to have a discernable macro effect in the real economy, and even longer for them to be reflected in national statistics.

So we are, even now, only seeing the very beginnings of the Brexit effect on the UK economy, and the first effect is, as you say, a loss of the forward momentum the UK economy had at the time of the referendum. That will be followed by a further slowdown and perhaps even outright recession just as the A50 talks are nearing their denouement. Not the best context for a successful negotiation.

However the converse is also true. Once the negative recessionary momentum builds up it will become increasingly difficult to stem the flow of bad news - even after some real recovery has taken place in some sectors.  But we have to be looking at this in terms of the next 5-10 years, and decades thereafter, not the next 3 months, and after that period a lot of irreversible damage will have been done to a lot of real people's lives.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 21st, 2017 at 10:50:24 AM EST
[ Parent ]
"Competitive devaluation" is a canard unleashed by guardians of the imperial basket to chastise THIRD WORLD ("developing nation") monetary regimes that struggle to stabilize domestic (commodity) price inflation, while servicing odious debt recommended by the IMF ... that is funded by new, mo' cheaper bond issues! It is to connote a supposed unlawful practice by central bankers (everywhere but US,UK) of "manipulating" currency price where the rule of "free" FX ought reign supreme.

(How BoJ escaped sanction [!] these sixty years is a study in cynical, imperial management science and attachment disorders. So was the CHF CAP CRISIS of '15; Who profits?)

Devaluation is never a good condition for those who rely on the paper to buy their daily bread. All gov'ts. seek a stable currency price, or low FX volatility. The UK is no exception and no developing nation. In fact it still enjoys PPP advantage among its peers exploiting resources of the THIRD WORLD. And that's what counts!


GBP:EUR, 1:1.1147
GBP:USD, 1:1.2975

parity watch

Diversity is the key to economic and political evolution.

by Cat on Thu Jul 20th, 2017 at 09:33:28 PM EST
[ Parent ]
What's to stop BoE trading with USD instead of EUR, huh?

Diversity is the key to economic and political evolution.
by Cat on Thu Jul 20th, 2017 at 09:36:49 PM EST
[ Parent ]
It did, it does, and it will.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 21st, 2017 at 10:53:08 AM EST
[ Parent ]

Diversity is the key to economic and political evolution.
by Cat on Sun Jul 23rd, 2017 at 12:18:15 PM EST
[ Parent ]
UK strangled its manufacturing base decades ago.  In 2017 the UK doesn't have the plant, knowledge, investment capital, and infrastructure for high margin, high tech, manufacturing and cannot compete on low margin manufacturing because of labor cost.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Jul 21st, 2017 at 06:53:03 PM EST
[ Parent ]
Yes, that's the rotten truth at the heart of brexit, the post War boom in the UK was largely brought about by cutting back on innovation. The City likes a sure thing RoI of 30%, investing in industry can never bring in those rewards.

We simply aren't in a position to capitalise on a fall in sterling by exporting our way out of trouble.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Fri Jul 21st, 2017 at 08:18:39 PM EST
[ Parent ]


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