Why we should welcome the failing pound
Why devaluation is positive for the British economy
by Abi Moses on 23rd October, 2016 and updated 23rd October, 2016 8:55pm
While the saying goes 'change is as good as the rest', the truth is it isn't, especially with regards to financial markets. With traders thriving on predictability, uncertainty takes us into the realm of the unknown, a sphere the UK is rather disheartened with. With the uncertainty over the UK’s plans to alter the terms of trade with some of our neighbours, the pound has dropped in value. However, it is not all doom and gloom.
Having plummeted over 17% since the Brexit announcement, all pinned down to our lack of control over what is to come, these changes do mean one thing, devaluation.
Money Week explains:
'We fuss that the UK’s huge current account deficit (about 6% of GDP – near a peacetime record) means we are dependent on continuous flows of speculative cash to keep our show on the road. Mark Carney thinks this is about the “kindness of strangers”. But markets aren’t kind: everyone else knows it is about the greed of strangers, something that can turn on a sixpence. We worry that the UK as a whole is living beyond its means –borrowing against unproductive assets (houses) for unproductive activities (buying clothes). And we know that very low interest rates are creating a crisis for pension funds – and hence for a large number of our oldest and best companies.'
Playing focus on the overvalue of the pound to date Merryn Somerset Webb concludes:
'Because of the constant flow of speculative capital into London, the pound has long been horribly overvalued (I’ve been writing articles pointing this out since at least 2008). It might now be mildly undervalued. But that, to my mind at least, represents a change for the better: if we all get even part of some of things we have been longing for, our latest devaluation should be considered a good thing.'
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