Sterlin'g Slump Has a Silver Lining

setmefree2

http://business.timesonline.co.uk/tol/business/columnists/article5779874.ece

Relax a little: sterling’s slump has a silver lining

The drop is the equivalent of an extra cut of five percentage points in interest rates, say Kevin Daly and Ben Broadbent economists at Goldman Sachs

"Whatever the cause, sterling’s fall is a big stimulus for the economy. One way of measuring its significance is to translate it into equivalent changes in interest rates. There used to be a rule of thumb that a 1% fall in the exchange rate has the same effect on output as a 0.25 percentage-point cut in interest rates. Our own estimates suggest the effect is somewhat smaller than this - about 0.17 points. But even on this basis, the 27% decline in sterling since the start of the credit crunch is equivalent to an additional cut in interest rates of between 4 and 5 percentage points.
The easing implied by the decline in sterling, together with the drop in interest rates, is phenomenal. The chart above shows monetary conditions indexes for Britain and the eurozone (these combine short and long-term interest rates, together with the trade-weighted exchange rate, into a single indicator, with weights that reflect the importance of each input in driving year-ahead growth). Since the start of the credit crunch, UK monetary conditions have eased by more than 6 percentage points on the back of sterling’s decline.
These effects take some time to come through. They are also being dominated, for the moment, by the huge hit to global trade wrought by the credit crunch. Everyone’s exports are shrinking."

amcluesent

Pity we don't/can't make much than anyone wants to buy at any price.

bubblesmoney

is there something like the USDX for the GBP where it is compared against many currencies at one go. that would give one an idea how the bond market / foreign investors will view investments in the uk wrt real returns for investment.

if such an index exists then the silver lining might instead be the sparks seen when silver compounds in explosives catch fire

Fulminating Silver

• Fulminating silver is largely silver nitride (AgN3)
• Fulminating silver is the most violently explosive compound among the nitrogen derivatives of the noble metals.

or the silver lining might just be a harmless cracker used at parties.

Silver fulminate, often in combination with potassium chlorate, is used in trick noise-makers known as "crackers", "snappers", "pop-its", or "bang-snaps", a popular type of novelty firework.

Degenerate

Only economic illiterates see the drop in Sterling as a bad thing for the UK economy. Pretty much every major economic recovery we have made - including the great depression - has begun with a big fall in Sterling.

exil

Degenerate wrote: »

Only economic illiterates see the drop in Sterling as a bad thing for the UK economy. Pretty much every major economic recovery we have made - including the great depression - has begun with a big fall in Sterling.

Indeed. we started coming out of the last one when we fell out of EMU

thelawnet

It's not going to do much for consumer spending when prices of all the imported goods are going up sharply. A lower exchange rate benefits only exporters, consumers and importers lose out.

Wookster

I read the article and I think its a load of tosh.

We (the UK) imports way more than we export, therefore a fall in the pound hurts importers more on balance. The only good thing in the long run is that imports might become prohibitively expensive, prompting significant increases in production in the UK for goods for consumption in the UK.

setmefree2

Wookster wrote: »

I read the article and I think its a load of tosh.

Fair enough

StevieJ

setmefree2 wrote: »

Fair enough

:D:D:D:D

StevieJ

Wookster wrote: »

I read the article and I think its a load of tosh.

We (the UK) imports way more than we export, therefore a fall in the pound hurts importers more on balance. The only good thing in the long run is that imports might become prohibitively expensive, prompting significant increases in production in the UK for goods for consumption in the UK.

I am sure I will miss all the China tat :T Looks like Antigua is out this year, Pontins here I come.

StevieJ

thelawnet wrote: »

It's not going to do much for consumer spending when prices of all the imported goods are going up sharply. A lower exchange rate benefits only exporters, consumers and importers lose out.

You mean we will not have deflation , great :beer: