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The falling pound - a bitter sweet development
31st August 2008
Ordinarily a depreciation in the exchange rate ought to provide a welcome boost to the competitiveness of UK industries exposed to international trade - providing a useful cushion of extra demand at a time of economic weakness. But Roger Bootle’s analysis in his latest Deloitte Economic Review provides a timely and really useful piece of work for A2 students wanting to deepen their understanding of the impact of a lower exchange rate on output, trade, inflationary pressures, profits and jobs.
Bootle argues the the lower pound will help to re-balance the economy - but depreciation has come at an earlier stage of the economic slowdown than that seen in 1992, which came after a major recession. Accordingly, the inflationary dangers of a weaker exchange rate might appear to be greater this time - one of the reasons why the Monetary Policy Committee appears reluctant to cut interest rates.
Download the excellent Deloitte Review here.
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.