mardi 17 mars 2015
How Much Are Concerns About Sterling's Current Strength Justified?
Posted on 13:21 by nice news
Bank of England (BoE) Governor Mark Carney's remarks last week on sterling's appreciation stirred up concerns about a prolonged period of disinflationary pressures and the prospect of weakening exports.
In his speech last week, Governor Carney struck a dovish tone when he said "it may be appropriate to take into account persistent external deflationary forces arising from the combination of continued foreign low inflation and the protracted effects of sterling’s strength on the prices facing UK consumers if those forces were to intensify."
Sterling's appreciation against the euro intensified after the European Central Bank (ECB) announced a massive quantitative easing program, while the US Federal Reserve's (Fed) indications of a reversal in monetary policy towards more normal rates has sent the dollar soaring against both the euro and sterling.
So how concerned should we be about the impact of those developments on the UK economy and inflation?
Regarding UK exports, it is hard to say what the impact of a stronger sterling against the euro might be, but we do know that when sterling depreciated strongly back in 2007 and 2008, exports still remained significantly disappointing. The Monetary Policy Committee (MPC) minutes from January 2013 showed that policymakers discussed this issue saying "the lack of a more significant improvement in the trade performance of the UK economy could partly be explained by slow growth overseas."
The latest official trade data showed exports to the US increased to a record high while exports to European Union markets decreased in January. This partly reflects sterling's moves against the euro and the US dollar. According to the Office for National Statistics (ONS), January’s average sterling exchange rate against the euro rose to seven-high while it dived against the dollar the most since March 2013.
Sterling's appreciation could also postpone
In his speech last week, Governor Carney struck a dovish tone when he said "it may be appropriate to take into account persistent external deflationary forces arising from the combination of continued foreign low inflation and the protracted effects of sterling’s strength on the prices facing UK consumers if those forces were to intensify."
Sterling's appreciation against the euro intensified after the European Central Bank (ECB) announced a massive quantitative easing program, while the US Federal Reserve's (Fed) indications of a reversal in monetary policy towards more normal rates has sent the dollar soaring against both the euro and sterling.
So how concerned should we be about the impact of those developments on the UK economy and inflation?
Regarding UK exports, it is hard to say what the impact of a stronger sterling against the euro might be, but we do know that when sterling depreciated strongly back in 2007 and 2008, exports still remained significantly disappointing. The Monetary Policy Committee (MPC) minutes from January 2013 showed that policymakers discussed this issue saying "the lack of a more significant improvement in the trade performance of the UK economy could partly be explained by slow growth overseas."
The latest official trade data showed exports to the US increased to a record high while exports to European Union markets decreased in January. This partly reflects sterling's moves against the euro and the US dollar. According to the Office for National Statistics (ONS), January’s average sterling exchange rate against the euro rose to seven-high while it dived against the dollar the most since March 2013.
Sterling's appreciation could also postpone
How Much Are Concerns About Sterling's Current Strength Justified?
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