Is the fall in sterling good for the UK?

SimpleSam06

Digi_Tilmitt wrote: »

Having their currency artificially cheap encourages their businesses to be less efficient which is ultimately detrimental to long term growth.

Thats a false corollary. It is entirely possible to be more efficient and cheaper, which explains the massive growth in their economy. If anything they can be accused of trying to be too efficient by using cheaper hazardous materials which they really shouldn't.

Digi_Tilmitt wrote: »

Putting "our own" inefficient exporters out of business is a good thing - their capital can be redeployed by the more efficient businesses for a net economic gain.

There reaches a stage where you just can't be more efficient without massive transformative technologies. The agricultural sector would be a good example of that. Of course this was already pointed out to you, not sure why I need to do it again.

Digi_Tilmitt wrote: »

Japan's currency has appreciated dramatically in the post world war II era. Yet where are the masses of bankrupt Japanese companies who cannot export?

And Germany is a first world country, as well as the largest exporter on earth. What do the exports of these two countries have in common? Think carefully now, theres a gold star in it for you...

Digi_Tilmitt wrote: »

I read an academic paper about this only last week.

Brilliant. An academic paper, eh?

Digi_Tilmitt wrote: »

More protectionist nonsense. The money should go where it can buy you the most productivity for the lowest price. If more growth can be achieved by investing in productive assets overseas, then it is ultimately better for the country as a whole to invest abroad.

You're only thinking in terms of products, materials, the shoes you buy from China in Dunnes. There is a lot more to an economy than shuffling around containers of your favourite shampoo. This really is basic stuff.

Digi_Tilmitt wrote: »

But if you look at what is physically happening, ultimately a stronger currency allows one to acquire the means of production in other countries at a discount to their true value.

You don't look at whats physically happening. Thats not how economies are built. Yeesh.

Digi_Tilmitt wrote: »

The weak currency country is selling itself for less than it's true value, and pays for it through slavery to the strong currency country.

Well the UK better get ready for an extended bout of slavery then. What ho.

Économiste Monétaire

clint999 wrote: »

Try Ctrl + Alt + 4/$ , usually works €

I think the fall in Sterling can be good for the UK economy because of increased tourism and increased exports, but obviously bad for any British tourists travelling to the euro zone.

It's good for anyone from Ireland or the euro zone heading to the UK because they'll get a lot more for their money. Not good for Irish exports though with the UK being one of our biggest export markets.

I travel to the UK quite a bit so I'm not complaining about the exchange rate at the moment.

Why do you reply with a carbon copy of another post? Nothing else added to it...

E.g.

KevR wrote: »

Try Ctrl + Alt + 4/$ , usually works €

I think the fall in Sterling can be good for the UK economy because of increased tourism and increased exports, but obviously bad for any British tourists travelling to the euro zone.

It's good for anyone from Ireland or the euro zone heading to the UK because they'll get a lot more for their money. Not good for Irish exports though with the UK being one of our biggest export markets.

I travel to the UK quite a bit so I'm not complaining about the exchange rate at the moment.

And before:

zaraba wrote: »

the title of this post is quite insulting to those in the banking industry, and the content of your first post reflects more on your understanding of banking then on that of the bankers themselves.

and now you try and weasel out with that cop out 'ah shure, twas just a joke like'.

clint999 wrote: »

the title of this post is quite insulting to those in the banking industry, and the content of your first post reflects more on your understanding of banking then on that of the bankers themselves.

and now you try and weasel out with that cop out 'ah shure, twas just a joke like'.

Odd...

BenjAii

Économiste Monétaire wrote: »

Why do you reply with a carbon copy of another post? Nothing else added to it...

E.g.


And before:



Odd...

I think one of the Mods might want to delete the Clint999 account. Having looked through a few other
of his posts they are just random copies of other comments in various threads. I suspect this is some SEO effort for the link in his signature.

damnyanks

So for the Irish the current swing is brilliant when you want to go shopping or whatever. What about for the rest of Europe ? Ireland is notoriously a rip off. I think tourists will goto UK instead of Ireland now (No real difference as far as tourists are concerned)

Digi_Tilmitt

SimpleSam06 wrote: »

Thats a false corollary. It is entirely possible to be more efficient and cheaper, which explains the massive growth in their economy. If anything they can be accused of trying to be too efficient by using cheaper hazardous materials which they really shouldn't.

It is entirely possible to be more efficient with an undervalued currency, but without the pressure on profits that a strengthening currency brings, there is less incentive for exporters to become more efficient.

There reaches a stage where you just can't be more efficient without massive transformative technologies. The agricultural sector would be a good example of that. Of course this was already pointed out to you, not sure why I need to do it again.

The march of technology will continue unabated. Certainly there's less efficiency gains to be had in areas outside manufacturing, but considering the protection of the agricultural sector in most developed countries, I would argue that there is still plenty of efficiency gains to be had in that sector were the protection removed.

And Germany is a first world country, as well as the largest exporter on earth. What do the exports of these two countries have in common? Think carefully now, theres a gold star in it for you...

I'm not going to speculate on what you mean here. Answer my original point directly please.

Brilliant. An academic paper, eh?

There's no need for a condescending attitude. At least I have been consulting research in the topic in question before forming my views.

You're only thinking in terms of products, materials, the shoes you buy from China in Dunnes. There is a lot more to an economy than shuffling around containers of your favourite shampoo. This really is basic stuff.

At the end of the day if you don't think in terms of what is actually being done you are missing the point of economics entirely.

You don't look at whats physically happening. Thats not how economies are built. Yeesh.

Same as above. Economics is not just maths equations.

Well the UK better get ready for an extended bout of slavery then. What ho.

Their means of production will available for foreign acquisition for less purchasing power than previously required. An excessive devaluation would amount to practical slavery to foreign acquirers of capital.

SimpleSam06

It seems to me as though you are missing the wood for the trees here. How exactly is a currency to remain strong in the face of zero domestic industry, FDI, tax haven status, unbelievable levels of remittances, or the mother of all tourism sectors? Its a self defeating equation. The most powerful economies on earth are not coincidentally the largest exporters. Don't confuse the effective slavery of Chinese workers with their decision to peg their currency at a weak level, these are two different things entirely.

You're talking about fundamentals, but you fail to grasp the fundamental that first world economies can't begin to compete with third world economies in areas such as agriculture, if they could they would, because you can bet that governments would be only too happy to put that money elsewhere.

The alternative is to allow local agriculture to collapse and become dependant for your food supply on unstable third world dictators. And good luck with that. Pointing at mysterious future "technological advancements" isn't going to do you much good when Kim O'Tinpot decides to cut off your bread and milk for a few months unless you give him what he wants.

mick.fr

getz wrote: »

its very bad for ireland- most of there exports go to the uk , and it is far too costly to send it to europe anyway, the french have that market

Not sure what do you mean by that, Ireland certainly does not export a lot to the UK, this is more the other way around, we import a lot in Ireland from the UK.

Irish farms do export meats and so to the UK, but that represents a very little amount compared to what UK buy from all other EU countries already.

Ireland is a small country and does not have the means of feeding Tesco shelves with many products in large amounts.

Anyway the pound going down, 1 pound=1 euro roughly, it is obviously bad for the english people, because a large amount of their goods are imported from Europe. So either way distributors increases their prices in the UK, either they do not do it, losing margins, but at least they can sale stuffs off.

But who knows, maybe prices will get higher in the UK, that makes sense to me because retaillers/distributors are losing money twice (Discounts they have to offer to sell off and currency value in Europe).

UK economy is very very weak anyway, I am actually surprised, this is probably the only country in the world going down so fast, letting go so many people in a such short period of time. The amount of shops/chains closing down is stunning.

In January 2009, Banks in UK would have let go about 500.000 workers.

This is only the beginning. Easy 2 million people in UK would have been let go a few months before XMAS and after.

asdasd

Not sure what do you mean by that, Ireland certainly does not export a lot to the UK, this is more the other way around, we import a lot in Ireland from the UK.

what matters (and what he meant) is the percentage of all our exports which go to the UK. That is high.

Anyway the pound going down, 1 pound=1 euro roughly, it is obviously bad for the english people, because a large amount of their goods are imported from Europe.

not really, people can shop around, buy british etc. The uk is getting to be far more competitive than the rest of europe with little or no inflationary effect. Also sometimes exporters must take the hit to maintain market share against locally produced items. If Mgners want to compete with (British) Bulmers they have to maintain sterling prices. Want cheap guiness - go ro England.

mick.fr

asdasd wrote: »

what matters (and what he meant) is the percentage of all our exports which go to the UK. That is high.



not really, people can shop around, buy british etc. The uk is getting to be far more competitive than the rest of europe with little or no inflationary effect. Also sometimes exporters must take the hit to maintain market share against locally produced items. If Mgners want to compete with (British) Bulmers they have to maintain sterling prices. Want cheap guiness - go ro England.

My understanding from an old economic report is that UK exports is about 20%, alright ok that is high, meaning that UK is a large customer for Irish exporters and producers. But still the Irish goods represent 0.05% of UK imports.

Maybe you guys have some recent reports? I would be interrested to get more recent figures.

asdasd

My understanding from an old economic report is that UK exports is about 20%, alright ok that is high, meaning that UK is a large customer for Irish exporters and producers. But still the Irish goods represent 0.05% of UK imports.

since we are talking about what is good for the UK then the inflationary cost of the 0.05% ( almost certainly an underestimate - its prob. 5%) of imports rising in cost is very low even if suppliers there dont switch from Irish to British products where possible ( i.e. foodstuffs etc.)


However we are not talking about Ireland-> Britain but the EuroZone -> Britain.

But I forsee noreal inflationary cost to them, because other factors are deflationary, and yet they are more competitive in exports to us ( the Eurozone).

gunsofbrixton

What do you guys reckon is sterling gonna fall further i see they have another bank of england anncoucnment on the 8th of Jan

Will it reach parity or possibly beyond

SimpleSam06

gunsofbrixton wrote: »

What do you guys reckon is sterling gonna fall further i see they have another bank of england anncoucnment on the 8th of Jan

Will it reach parity or possibly beyond

Pretty much inevitable at this stage...

There are two main factors putting downward pressure on the pound, analysts suggest.

First, interest rates in the UK are lower than those in the eurozone, which makes the pound less attractive to foreign investors.

Analysts believe the economic slowdown in the UK will be more severe than in the eurozone, which means the Bank of England could be forced to lower interest rates from their current level of 2%.

Interest rates in the eurozone currently stand at 2.5% and the European Central Bank has hinted that further rate cuts are unlikely early in the New Year.

Second, trading levels over the holiday period are low, which means that any moves in exchange rates are exaggerated.

"Actual liquidity levels are painfully thin," said Daniel Baker at Informa Global Markets.

He believes parity with the euro is almost inevitable.

"The path to parity is self fulfilling," he said.

cavedave

There is a very interesting blog post here with the cheery title 2009 is the fall of the West.

He uses the state of the UK economy to describe a wider problem.

If the bank prints money, and then lends that money into the banking system, the banking system can then use the money to buy up government bond issues, thereby financing government debt. Under the Basel rules, lending into OECD governments creates tier 1 capital, and therefore means that the banks are seen as meeting capital adequacy rules. In other words, the banks return to (apparent) solvency, and the government manages to continue borrowing, and does not default on the loans. In the meantime an Act of 1844 that required the Bank of England to publish the amount of currency issued is abolished, such that the Ponzi scheme can be hidden.

It is a long read and a terrifying one also.

Gamesnash.ie: Pat

Firstly I must point out I am posting this in a personal capacity and not as a representative of my username.

Could someone explain to me why British economists are predicting very low inflation ?

Everthing that the UK sources from outside of its own borders now costs more. Even if a UK business is buying completely from within the UK it is then reliant on its own suppliers production being sourced within the UK as well. Every raw material that is not sourced in house is now costing more.

From what I can see the current price levels are based on purchase prices that were negotiated / contracted months ago before the value collapse. A UK trader / importer now sourcing goods for delivery into the UK in March / April is going to find they are paying a hell of a lot more in sterling. This will have to be passed on in the medium term to retailers and consumers. It's all well and good to have the current massive sales but this is staving off an inevitable for these retailers. They are selling for less profit and in a lot of cases at a loss to gain cashflow to stay open and pay the rent. Eventually they have to either close or become profitable by selling at a profit - if it is possible. Where are these guys going to be in 3 months time when the cost price has gone up too ???

I don't believe that the UK is self suffiecient as such - I am not an economist so somebody here may know otherwise. There is so much manufacturing etc done outside of the UK that is imported that I can't see how their prices are going to remain the same. I know there is an influence by the retailers dropping prices etc but that won't be sustainable on the long term - only by larger companies who have been trading in dollars and have dollars reserves. There already are big retailers going out of business and more will follow. The sale discounts can't continue at this pace so my view is that this deflationary pressure will lift in the coming months leaving the massive inflationary pressure of sourcing goods from outside.

What have I missed ?

Économiste Monétaire

In short, falling demand and a falling money supply, Gamesnash. There's already a thread on Irish deflation that might be worth looking at; it's here.

Gamesnash.ie: Pat

Économiste Monétaire wrote: »

In short, falling demand and a falling money supply, Gamesnash. There's already a thread on Irish deflation that might be worth looking at; it's here.

I here you loud and clear and your post there is very insightful but the deflation you are on about there is the pressure on retailers to cut the prices due to falling demand - for whatever reason be it less money in the pocket or not.


I am not an economist and am not as versed as alot of the posters here are - yourself included. What my point / question is that in the case of the UK there will come a point where retailers cant cut any more and simply go bankrupt or close voluntarily. You can't stay open in the long term if the price you can achieve for your goods and services is lower than the cost price to produce these.

In the case of Sterling which I think has lost 30% of its value - in the worst case scenario of a UK business who sources all raw materials from outside of the UK their cost price is now 30% higher. Demand falling may well be driving the price down but eventually that business cant trade anymore and closes.

Perhaps as the supply of goods and services starts drying up then the inflation will occur. Maybe the end result is UK owned and operated businesses will be few and far between and will be replaced by other international businesses. Either way the fall in sterling can't be a good thing for them in the long term.

silverharp

Gamesnash.ie wrote: »

What my point / question is that in the case of the UK there will come a point where retailers cant cut any more and simply go bankrupt or close voluntarily. You can't stay open in the long term if the price you can achieve for your goods and services is lower than the cost price to produce these.

In the case of Sterling which I think has lost 30% of its value - in the worst case scenario of a UK business who sources all raw materials from outside of the UK their cost price is now 30% higher. Demand falling may well be driving the price down but eventually that business cant trade anymore and closes.

Perhaps as the supply of goods and services starts drying up then the inflation will occur. Maybe the end result is UK owned and operated businesses will be few and far between and will be replaced by other international businesses. Either way the fall in sterling can't be a good thing for them in the long term.

It depends what happens to stg in the future, a one off adjustment downwards will not effect inflation going forward where import prices are generally falling globally, the currency would have to fall significantly every year for it to effect each years inflaion number.
A weak currency has advantages and disadvantages, if its actively pursued as a policy I would be critical as there is an equal and opposite reaction somewhere else in the economy, if its a simple acknowlegement that the UK is weaker then its major trading partners then so be it.

Économiste Monétaire

Gamesnash.ie wrote: »

I here you loud and clear and your post there is very insightful but the deflation you are on about there is the pressure on retailers to cut the prices due to falling demand - for whatever reason be it less money in the pocket or not.


I am not an economist and am not as versed as alot of the posters here are - yourself included. What my point / question is that in the case of the UK there will come a point where retailers cant cut any more and simply go bankrupt or close voluntarily. You can't stay open in the long term if the price you can achieve for your goods and services is lower than the cost price to produce these.

In the case of Sterling which I think has lost 30% of its value - in the worst case scenario of a UK business who sources all raw materials from outside of the UK their cost price is now 30% higher. Demand falling may well be driving the price down but eventually that business cant trade anymore and closes.

Perhaps as the supply of goods and services starts drying up then the inflation will occur. Maybe the end result is UK owned and operated businesses will be few and far between and will be replaced by other international businesses. Either way the fall in sterling can't be a good thing for them in the long term.

Well, the disinflation, and deflation, expectations that you’re asking about are based on the Consumer Price Index. So, it’s in that band of measurement that they are discussing the issue, and we have the projections by the Bank of England (BoE). The main technical falls are in energy and food prices (commodity prices in general). In the UK CPI calculations, the majority of the weightings are as follows (I left smaller ones out):
Food and non-alcoholic beverages: 10.9%
Clothing and footwear: 6.3%
Housing and household services: 11.5%
Furniture and household goods: 6.7%
Transport: 15.2%
Recreation and culture: 15.2%
Restaurants and hotels: 13.7%
Miscellaneous goods and services: 9.9%

So, you can imagine the effects on those areas with reductions in commodity prices, mortgage payments, et cetera. Simple demand plays the largest part on the projections of disinflation/deflation by the BoE; people are losing their jobs, available consumer credit is falling off the chart, servicing current debt is becoming more difficult, house prices are falling faster than in Ireland (lower perceived wealth of consumers overall), inflation expectations are falling, income expectations are falling. The list goes on, and the inflation expectation by the BoE, based on their actions, looks something like this (the darker the shading, the higher the probability):

It's not quite as dramatic as you seem to have inferred for the specific area of retailing--the demand drop is significant for the short-term--it's more what we consider to be technical price drops. (The graph is from the BoE inflation publication; the reality is probably one point lower than their actions would suggest.)

Also, money isn’t just the currency you, or consumers in general, carry around in your wallet; there is a much broader definition of money used by economists. In the UK that is labelled M4, and fluctuates based upon the actions of financial institutions. When lending, and credit availability in general falls, the money supply falls; capital also leaves a country because there are few profitable opportunities. It’s a bit more complicated than the consumer demand argument, though, and far more boring .

Some businesses will go bankrupt, of course, depending on the nuances of each finance and business model they use. The increase in import prices, due to the change in the exchange rate, is effecting the downward pressure on prices--in the opposite direction. The demand factor effects are on the expectations for the next 1.5 to 2 years. Longer term, you need to look at Silverharp's point on sterling and other factors. Either the economy will recover in a reasonably quick fashion (start of Q3 2009), and so the margin hit that retailers have taken will be offset, or we'll see a further contraction in the industry to a more permanent output level. The cooling of wage demands will be a positive for firms, and each firm/industry will have a different level of exposure to (solely) the domestic British market. Firms will either take the hit of the necessity of lower prices, and hope for the best in the future (and, if possible, shed some costs), or they'll liquidate. That's just what happens in recessions, increases in output level off in recognition of a new perceived level of wealth and demand.

Probably more on topic; the exchange rate issue is a double edged sword, which effects business in different ways. You could have increased sales and increased costs at the same time... It's difficult to disaggregate that for every firm.