Recovery in UK exports holds key to future growth

By Trevor Williams, Chief Economist, Corporate Markets

The sharp fall in sterling over the past three years and the nascent signs of recovery in the global economy
provide an opportunity for growth that the UK cannot afford to miss.

With the household and corporate sectors weighed down by high levels of indebtedness, and the public sector about to embark on a substantial fiscal squeeze, the prospect of a meaningful recovery in domestic demand over the coming years is, we believe, limited.

Instead, to achieve a reasonably strong and sustained rate of growth means it is not only desirable, but essential, that the UK rebalances away from debtdriven domestic demand towards net exports. The competitive boost provided by the fall in sterling, and the steady recovery in global demand, provide this opportunity.

Since peaking in January 2007, sterling’s tradeweighted index has fallen by around twenty-five
percent. While the trade-weighted exchange rate has recovered a little over the past year, the overall decline
over the past three years represents the largest correction in the exchange rate since the UK withdrew
from the ERM in the early 1990s.

As chart a shows, the decline in sterling has been most acute against the yen, with GBP/YEN having dropped by around almost 70% over this period. Nonetheless, against the US dollar, euro, Swiss franc, and a host of emerging market currencies, sterling has also fallen sharply.

Read more (PDF, 224 kB)

* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream

 


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