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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 Bernard - Jul 16 26 comments
by Frank Schnittger - Jul 14 11 comments
by ARGeezer - Jul 10 18 comments
by Oui - Jul 14
by eurogreen - Jul 8 8 comments
by Frank Schnittger - Jul 10 24 comments
by gmoke - Jul 4 39 comments
by Oui - Jul 9 8 comments
by Bernard - Jul 1626 comments
by Frank Schnittger - Jul 1411 comments
by Oui - Jul 14
by ARGeezer - Jul 1018 comments
by Frank Schnittger - Jul 1024 comments
by Oui - Jul 98 comments
by eurogreen - Jul 88 comments
by Frank Schnittger - Jul 532 comments
by gmoke - Jul 439 comments
by Frank Schnittger - Jul 252 comments
by Frank Schnittger - Jun 26106 comments
by Oui - Jun 219 comments
by Frank Schnittger - Jun 2032 comments
by IdiotSavant - Jun 2013 comments
by gmoke - Jun 187 comments