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Rebalancing, deferred

Stephanie Flanders | 16:57 UK time, Tuesday, 9 March 2010

Maybe we can't devalue our way out of trouble after all.

That was one of the fears sending the value of the pound down again this morning, when the January trade figures showed a surprise widening in the UK trade deficit from £2.6bn to £3.8bn, the highest since August 2008.

The figures showed that lower exports - not higher imports - were responsible for most of the change. Excluding erratic items like oil, the volume of good exports fell by 6% during the month. Imports, on the same measure, actually fell by 1.2%.

Yes, these are only one month's figures, which may have been distorted by the bad weather. But this is not the first time that the trade figures have disappointed. Whether it's the GDP data or the trade figures, you'd be hard-pressed to find any evidence of export-led growth. Quite the reverse.

According to those recent GDP figures, net trade actually subtracted from growth throughout the second half of 2009. This, despite the fact that the pound has lost about 28% of its value, in trade-weighted terms, since mid-2007.

What's supposed to happen when a country's currency depreciates is that its exports become cheaper, in terms of foreign currency, and imports become more expensive. In other words, its terms of trade deteriorate: you can buy fewer imports for one unit of exports.

Though Harold Wilson famously tried to claim otherwise, that means that "the pound in our pocket" is worth less in the global marketplace than before.

But, other things equal, it should also mean that UK-manufactured goods do better against their competitors - both abroad and in their home market. As a result, we should be buying more UK-made products because they're cheaper. And so should foreigners.

Except, as I've mentioned before, that is not what we've seen. What we've seen is exports and imports falling - along with the wider economy - but exports more than imports. And there has been almost no change in our terms of trade.

In other words, UK manufacturers seem to have taken the opportunity to increase their margins - here and abroad - rather than pick up new sales.

Chart showing the UK terms of trade and the sterling effective exchange rate

Melissa Kidd, at Lombard Street Research has alerted me to a recent article on this subject from the Bank of England. As that note points out, there are lots of reasons why Britain's terms of trade [439KB PDF] might not have responded to the fall in sterling.

Over time, the higher margins could still attract more companies into the export sector and thus encourage more rebalancing of the economy, along with lower export prices.

That is more or less what happened after we left the ERM in 1992. As the same chart shows, the terms of trade didn't fall very much then either, but we did - belatedly - enjoy a brief period of more balanced growth.

There is no doubt that the sharpest fall in the value of sterling since the war happened at a bad time for exporters to make the most of it. As the pound was falling, so were our export markets - right off a cliff.

Under the circumstances, it's perhaps not surprising that our exporters tried to extract every last penny out of the demand that was still there.

By supporting cashflow, this response to the lower pound may even have contributed to the smaller number of insolvencies in this recession, relative to the decline in output.

On this optimistic view, a pick-up in export volumes is only a matter of time. As the world recovers, so will exports. (True, we don't export much to the markets that are actually growing at the moment - like China. But remember this is supposed to be the optimistic view.)

Exporters have been making positive noises in recent company surveys by both the CBI and the PMI. Here, as elsewhere, the hard numbers may be a few steps behind reality.

However, the pessimists would say that, in a global economy, 28% depreciations don't buy as much growth as they used to.

With global supply chains now so much more integrated across borders, even self-described "exporters" will rely a lot on imported components as well as raw commodities.

That means the net benefit from even a significant depreciation is almost certainly lower than it used to be, even if it's unlikely to be zero.

Indeed, it could be that in this globalised world. The big gainers from depreciation are not UK exporters, or workers in UK factories, but UK shareholders in UK-listed companies who operate around the world and can now expect the sterling profitability of those operations to go up.

Supposedly, that kind of optimism about future earnings has helped drive the recent rise in the FTSE. Though today, even that recent rally seems to have petered out.

Oh yes, and there was a disappointing housing-market survey, and some words of warning about the deficit from Fitch, the leading ratings agency. All in all, not a good day for UK plc.

Comments

Page 1 of 2

  • Comment number 1.

    Ms Flanders wrote: 'Maybe we can't devalue our way out of trouble after all'

    Possibly true, but then we can devalue our way into trouble instead.

  • Comment number 2.

    Looks like this best placed economy (Gordon the saviour of the worlds words) will be in a worse state if we get him for 5 more years or even worse a hung parliment

  • Comment number 3.

    Stephanie,

    "Indeed, it could be that in this globalised world. The big gainers from depreciation are not UK exporters, or workers in UK factories, but UK shareholders in UK-listed companies who operate around the world and can now expect the sterling profitability of those operations to go up."

    Now that would be a nice thought if it were true. However, when we follow the line to where the big bucks in UK shareholding are, that rise in sterling profitability will not be spent here but in other countries.

  • Comment number 4.

    So, exports aren't growing despite the near-disintegration of sterling (because what else would you call a 25% devaluation?)

    Well, pretty obviously, to exploit a weak currency, you need to have businesses capable of exporting. And that's the fundamental problem.

    Look at the 'offer' that we as a country make to businesses thinking of starting up in the UK - excessive petty regulation, excessive taxation (and don't forget business rates), unpredictability, tax authorities which exploit every possible loophole in the 10,000-page tax code, constant meddling from moralising politicians, and an unhelpful political attitude towards our biggest market (Europe).

    Unless the UK becomes more business-friendly, and concentrates more on efficiency and less on trying to remodel society, this is the way it's going to be. And remember, we're no longer net exporters of energy - so we need exports to pay for our essential imports of oil and gas as well as of food.

    If we don't shape up on this issue we're going to be in very big trouble.

  • Comment number 5.

    So there is no easy way out. Big surprise. The only way we will be able to take the first steps to recovering as a nation, is if the government stops taking action to maintain asset price inflation and allows the deflation of the bubble.

    Those who are leveraged on over-valued assets will need to take a haircut - but that is capitalism, and the nature of speculation.

    It simply MUST fall to those who have made risky investments (yes that does include property) to take the hit, or we are doomed.

  • Comment number 6.

    No surprise really our manufacturing capacity has been destroyed over many many years, firstly by incompetent management and stupid trade unions in the 60's and 70's and latterly be a failure in policy to encourage (I do NOT mean nationalise/support) key industries. The UK has also lost ownership of key sectors, and whilst in principal I am in favour of the free movement in capital, this only works if the playing field is level, eg France/China/US to name but a few they are highly protective of ownership of certain industries. We have been extremely stupid, and the chickens have come home to roost.

  • Comment number 7.

    Having worked in a business where up to 25% of our profit came from exchange rate gains, you do just bank the profit at times like this. You increase you output using existing resources to the max, but new investment is just too risky, so I'd be surprised by any leap in export growth

  • Comment number 8.

    For all the chatter about Emerging Economies, face facts: The UK is a submerging economy, submerging under grotesque levels of consumer and government debt.

    The politicans blame the bankers, but they do so to hide their own blushes: The deficit's primary reason is structural (Govt spending > Income over the cycle). Why? Last time i looked we had spendt something in th eregion of £68bn in "tax credits". just look at the figures for yourselves.. its all been done for political reasons.

    As for the consumers... what politican is going to crack down on consumer credit in the middle of a bubble to stop that voter buying that nice shiny new car to put in front of the house they cant afford...

    ...and they want to get re-elected. un-believe-able.

  • Comment number 9.

    We were encouraged to take up personal debt, and now we are being told off for paying the debt off and not spending.
    Maybe some psychologists should explain basic human nature to the 'experts'.

    Without cash how can we buy anything?

  • Comment number 10.

    Thanks Steph - for listening and covering this news.

    A good summary. Yep - reality not looking too good at the moment for the UK.

    This news has ramifications for the already overcooked growth forecasts which are designed to arrest the UK deficit/debt.

    Some hard analysis needs to be caried out. Time for wishful thinking is over.....

  • Comment number 11.

    Stephanie, any chance of extrapolating the likely impact on the wider economy of the pessimists and the optimists views?

    What does this all mean for the man on the street, for the governments fiscal position going forward and for monetary policy if either scenario plays out?

  • Comment number 12.

    I'm no longer trading in Sterling. It's too unpredictable and the US still is a more attractive business base and stable. Consequently doing all my trade with the US. Previously, I did alot with the UK but shipping costs,are higher than for the US (yes, despite less distance).
    The UK has got to change the way companies are taxed, rip off councils, unattractive taxes, greedy government, appalling internet speed and the lists go on. Sofar the Brownian government has just done nothing to help the standard business person.If they are waiting in hope for an improvement, then it may be a very long wait, in the meantime the bust continues.

  • Comment number 13.

    The widening trade gap was only a surprise to economists and talking heads on TV news. In the real world it is clear that we no longer compete and are in the final stages of decline.

    The more we glide towards socialism the worst it will get, as witnessed by the public servants on strike due tot he fact their redundancy payments would be reduced to an outrageous 2 years of salary. Clearly these individuals do not understand that we are bankrupt, and like all those on the left, believe that they can live at the expense of others, especially the "rich".

    The housing numbers in 12 months time will make today look like a golden age. 400,000 mortgages in arrears, interest rates forced to rise to defend the pound, people coming to the end of 2 year deals to go onto every incresing SVR, buy to let owners trying to bail, individuals trying to downsize to fund retirement or family consolidation.

    We have no "right" to our lifestyle, it has to be earned not printed. And those that have the gold make the rules. The reaction to our reduced circumstances will be interesting. Sadly I believe it will be civil unrest, strikes and a more authoritarian government.

  • Comment number 14.

    So it looks like we are increasing margin in existing markets; not a bad thing. I'm not sure we are seeing global market growth happening at the moment; so perhaps we shouldn't be quite as surprised as Stephanie at import's performance. Price dropping in the current environment could just be giving money away.

    However UK firms should be well positioned to address new markets - how, when and if this takes place will be interesting to see.

    Interesting if this will help to address the general trade impbalance around the world, I am not convinced it will without further help from the government.

    Without a real plan to build a growing world class manufacturing base we won't achieve it. Albeit we are still around the world's 6th largest manufacturing country, so well placed to develop if the government has the will to encourage it, the pound continues to be competitive and we maintain the flexible labour policy.

    It's not all doom and gloom, we just need to stop moaning and start competing.

  • Comment number 15.

    Just like Britians factories it seems like your moderator(s) are working on short time and therefore not increasing output to take advantage of any the depreciating value of time/money. One hour awaiting moderation is a little excessive. Less than Sterling output. I can't wait to see what all the fuss is about.

  • Comment number 16.

    no mention of china's currency manipulation that keeps a currency that should the strongest in the world weaker than gbp?

    the uk could devalue till it is quoted in seashells and it would still be cheaper to import goods from china.

    china is at the root of the global economic instability. through currency manipulation they tip the table enough so all the water ends up their end. which is why they have all the money/gold and why we get poorer and deeper in debt [to them].

    the currency market is not functioning correctly in sorting out imbalances.

  • Comment number 17.

    I can't see that this is any great surprise. We don't actually make much now so how in hell's name can we be expected to export anything? And those few things that we do make are generally from factories owned by foreign companies and can be closed at their whim ( Corus and Kraft currently). For the last 30 years or so governments of every hue have colluded with the City of London to sell off everything and anything for a fast buck (Bye bye Dover docks). This allows the City to gamble with huge stakes to make a few very rich people and organisations even richer. There are many figures quoted to show that most of the wealth of this country is in the hands of a very few people and whilst all of the figures will not be accurate the general premses is true. And this system compounds the troubles of 'broken Britain'. Taxation is unfair in that the lowly paid have to pay their taxes with no getouts whilst the higher paid employ people to make sure they pay as little as possible. People who are in work, reasonably well of and content generally do not commit crime. They resort to crime now as it is generally the only way they can hope to get rich. The gap between rich and poor is wide and getting wider and not one of the major parties in the run up to this election are acknowledging this fact or proposing anything that is likely to produce any meaningful changes to redistribute wealth more fairly. They cannot - they have sold their souls a long time ago. Both Labour and the Tories are still in the pocket of the City and will continue to look after the rich at the expense of the rest. Lib Dems are tinkering with the problem but are no where near radical enough. They should be proposing the abolition of every form of taxation except V.A.T. which should without exception be applied to everything that is bought sold and supplied. I believe that public purse would be awash with money under that system and no one could avoid paying their taxes, and that it is likely only the rich income tax avoiders would notice much difference overall. Of course this is all a pipe dream and we will continue to slip slowly towards the pleasure seeking end of our civilisation in line with all those that went before. Imports/exports are the least of our troubles.

  • Comment number 18.

    Steph, you mention the recent rise in the FTSE. Remember, the FTSE 100 is composed almost entirely of multi-national companies that earn most of their revenue outside the UK. A rise in the index is a vote of confidence in the global economy, not (unfortunately) in the UK economy.

  • Comment number 19.

    Stephanie Flanders wrote:

    "Maybe we can't devalue our way out of trouble after all."

    Glad to see that your are at last beginning to see things as they are! We must first tackle our internal debt mountain. The debt mountain built on unsustainable imaginary asset values has to undergo debt deflation in order that we can start to recover. (This realisation was why Irving Fisher changed his view of debt after the 1930's crash and recovery.)

    I know I have been banging on about this for well over a year, but it is also probable that economists need to first see that their solution of returning to the status quo ante will fail/is failing. The only thing that QE and zero interest rates do on the downswing of a crash is to delay fixing the problem - they do NOT create a renewed upward path. However once the debt deflation has taken place then these same actions can boost recovery.

    So, put up interest rates to rational levels - let the assets secured on over priced debt be released to the market at realistic prices - being prepared to nationalise the banks/mortgage companies to stop them going bust. Then after this has worked though say six to twelve months then start Keynesian reflation, by lowering interest rates. Then and only then can we get a real recovery.

    Otherwise what we will see happening is the 20 year depression of the Long Depression - also by the way contributed to by a reluctance to sell on overpriced property assets at realistic prices. This is exactly what we see happening now!

  • Comment number 20.

    We're talking exchange rates, so a word about Australia here...
    The Australian dollar has gained dramatically against almost every other currency.... but beware...
    Aussie banks are hitched up totally with the Aussie property market, which in many areas is seriously over-priced.
    The OZ government is paying the deposits for many first-time buyers....beware again.
    Australian banks are riding on a very dodgy tightrope.
    And Australian businesses are becoming un-competetive...beware again.
    Aussie hopes are resting on raw-materials to China....not sheep.
    So the poms won't buy the houses, and neither will anyone else.
    In the meantime the ratio of average Aussie earnings to house-prices is a little skew-whiff.
    Aussies.....don't fall down the same hole as the rest of the Western World.

  • Comment number 21.

    Personally I'm beginning to believe we should adopt the US/Boeing attitude to imports.

  • Comment number 22.

    How long before the GDP has shrunk by 10% from the peak?

    How long before Gordon Borowin comes clean over the fact..he didn't save the world after all...maybe boom and bust hasn't been abolished

    Obviously he won't

    Darling did at least reflect the worst recession in 70 years, so the Budget will be very interesting

    The pendulum is swinging very much towards the cut sooner camp

    How bad will the GDP figures be? Due before the third debate, so I hope that one is on the economy..does anyone know?

  • Comment number 23.

    A On the other hand retail sales were up 2.5% in February and online sales up 15.5%!
    http://www.digitallook.com/news/3326075/Retail_sales_warm_up_in_February.html?&username=&ac=

    B Yes the property scene was not as cheery but the fact remains that most estate agents expect prices to keep on rising this year......which will mean a lot of negative equity is wiped out and recently-classed-as-rotten toxic assets start to smell ok again.And when property analysts say that common sense implies that currently rising property prices are unsustainable methinks it means they will keep on going up, because since when has common sense ever had anything to do with property?
    C There is lots and lots of cash out there, now accounting for nearly a third of property sales, which tends to offset the idea of indebted Britain.
    http://blogs.thisismoney.co.uk/2010/02/cash-buyers-snap-up-30-of-homes.html
    A buyer with a cash sale has no mortgage and has higher disposable income than if they had taken out a mortgage.
    WHEN MORTGAGE FUNDING BECOMES MORE AVAILABLE PRICES ARE GOING TO ROCKET, AS THEY HAVE MANAGED TO CLIMB WHEN THERE WAS HARDLY ANY MORTGAGE FUNDING AT ALL.

    C The gloomy news, quoted by Steph, has the interesting effect of reducing the interest payable on UK government debt ....every cloud has a silver lining...

    http://uk.finance.yahoo.com/news/economic-data-boosts-gilts-digilook-f5e944a05429.html?x=0

    D And not everyone thinks a low pound is a bad thing......
    Roger Bootle, for instance .....

    http://www.telegraph.co.uk/finance/comment/rogerbootle/2789036/Pound-fall-is-UKs-get-out-of-jail-free-card.html

    E Shares up 57% in 12 months ....hardly a sign of doom and gloom is it?
    http://uk.finance.yahoo.com/news/ftse-100-has-gained-57pc-as-first-anniversary-of-its-low-arrives-tele-d70b99da3f10.html;
    Yes I know it is a lot but we are nowhere near where we were 3 years ago.

    F I think what we are seeing is that the emergence from recession is happening anyway, which leads to an increase in consumtpion and therefore imports.
    The increase in exports will take a little while to filter through, as UK companies are only now beginning to see their order books improve and there is a time lag , and as Europe is slipping into the doldrums, their need for UK products has not picked up yet .....but it will.
    G The rise in stamp duty andVAT and the January tax demands made people feel skint....but as the weather improves my wife will be out shopping again ,people will be buying patio furniture in B&Q, and al-fresco drinking and eating will seem less insane.

    We have turned the corner, we just haven't had time to sit down and relax.

    G Onward-ho has been given the go-ahead for a new £2m project and the banks are smiling again.
    THIS PROJECT STALLED THE WEEK NORTHERN ROCK CRASHED.
    Now it's back on again.

    H I spoke to my builder today, hoping the downturn would allow for a good discount.......
    Guess what ...he is run off his feet with new contracts.
    That means more labourers and sparks and plumbers.

    I It has been a long,cold hard,winter.
    And we all know what that means......

    It is going to be a fantastic summer!

    YOU CAN QUOTE ME ON THAT!

    Where did you read it ?
    Here!

    HO SAYS ALL SYSTEMS GO!

  • Comment number 24.

    #4 Friendlycard - 'If we don't shape up on this issue we're going to be in very big trouble' Hear hear to your observation on the business unfriendly culture this Government appears to believe is progress. Come on Cameron, commit yourself to creating encouraging business conditions (facts please not waffle) and we will apply ourselves. We don't make much in UK but we do innovate better than anyone in the world, but we need some incentive. I am getting too old to waste energy trying to work out how to turn a fair profit. I would prefer to perfect world class projects.

  • Comment number 25.

    'All in all, not a good day for UK plc'

    And more reasons why we simply have to ditch Gordon Brown and New Labour.

  • Comment number 26.

    Perhaps one of the reasons for the drop in exports is that we no longer manufacture anything to export. We have allowed foriegn investors to buy UK companies, close down the UK factories and move the manufacturing abroad.

  • Comment number 27.

    How difficult can it become?

    I can remember when the Govermnent through the BoE managed the economy by focusing on Balance of Payments/Trade when that failed they concentrated on the Exchange rate (following the Deutsch Mark) then after that failed they moved on to the Rate of Infation (remember were used to be pegged at 2%) now that has failed. I think bailing out the banks via QE (at £200B) seems to have failed, don't you. What emergency measures can save us now...
    I note the Chinese government has recently recommended its people to buy gold. The BoE used to have some just for such an emergency as we have now. Unfortunately, Gordon "Bullyon-Boy" Brown got his hands on it 10 years ago and sold it because he thought he could elimate boom and bust. Well we've had 10 years of boom (much longer than normal) so prepare for a very long time of being bust. Unless of course you had the foresight to have purchased your own seat in the lifeboat with a little gold. It's probably still not too late but you'd be better having shares in a goldmine since governments have a habit of taking your physical gold when things get really tough.

  • Comment number 28.

    I starting to think that the government has turned this country into a fledgling banana republic. We're going down fast.

  • Comment number 29.

    All this talk of the UK 'exporting' itself out of trouble through manufacturing? What manufacturing? Not one of the engineering companies I dealt with ten years ago is still in business.

    Remember Thatch's "We don't need manufacturing, we can just be a service economy"? We reap what she sowed...

  • Comment number 30.

    For years successful British exporters have had to sell on quality not price, they will never compete with low cost countries just on price. I don't expect BMW's are 25% dearer in the UK now the pound is weak because there is a market price. BMW take the pain just as Jaguar do abroad when the pound is strong. When currency is to a manufacturers advantage they spend more on marketing, but that takes time to show in sales. If manufacturers did drop their prices, assuming they have the capacity to fill extra orders, they would be in big problems raising their prices in a year or 2 when exchange rates went the other was as they inevitably do over time.

    Bigger orders, from commercial customers, are more price sensitive but such orders can take weeks, months and even years between first contacting a potential customer to goods actually leaving the country. A current although extreme example in the news is EADS and the US Airforce refuelling tankers. On those sorts of jobs a weak pound for a couple of months is irrelevant and if it is long term wouldn't show immediately.

    Where the quick wins will probably show are areas like tourism where a Strong Euro hasn't helped Greece and Spain but seems to have helped the UK both in us holidaying in the UK and encouraging foreign visitors.

  • Comment number 31.

    Lord Mandleson the Business Minister will no doubt be on News Night to explain the Governments position and how we are doing GB down.


    Steph, just a matter of interest, I believe that the UK holds a substantial amount of US debt? If this is the case presumably we earn interst on this debt which we can then use to finance our own debt. Also, why are holding US debt when we have enough of our own.

    Seriously, any readers thoughts would be appreciated.

    Thanks


  • Comment number 32.

    It is good news about house prices today, not bad. House prices can either fall quickly like in America, roughly 40% from their peak in 2007, or they can fall slowly like in Japan, 40% from their peak in 1989. Its going to happen one way or the other but if you go the Japanese way it costs the country (taxpayers) billions trying in vain to swim against the tide of economic reality. Its not worth it, the price is just too high.

  • Comment number 33.

    #5 Roy. There is no way out, either easy or hard.

    Falling property prices are at some point inevitable. That will just exacerbate the problem. People thrown out of their homes, downward pressure on construction and ancillary businesses and banks taking possession of lots of lots of houses at a lot less than book value. Cue another banking crisis as market to fantasy accounting crashes head on into reality.

  • Comment number 34.

    It is always good to look at reputable foreign newspapers and magazines to see how the rest of the world views the state of our economy and governance. This chart from the Wall Street Journal shows how they rate our sovereign debt to be at greater risk than Italy or Spain. In fact only Ireland, Greece and Portugal are in worse situations than according to their assessment. Check it out at http://s.wsj.net/public/resources/documents/st_heatmap022010_20100223.html to see for yourselves.

  • Comment number 35.

    Bah humbug. I'm only a layperson but not convinced there's much of a story here. It's just one month's figure, in January, before the additional fall in exchange rates. And it's only goods, which is now a pretty small part of the economy. And changes take a while to filter through. And compared to the average of the last couple of decades, the pound isn't that low against the dollar. I don't feel this means much either way. I also guess that a lower value of the pound will help things eventually.

  • Comment number 36.

    WELCOME TO THE FUTURE!


    I can feel a 'Statist' coming on.

  • Comment number 37.

    This is what happened when the main root cause of the problem is not addressed. By just discussing the situation won't make it improve.

    Addressing the cause problem will question the current status quo so I don't know who could be brave enough.

  • Comment number 38.

    "UK manufacturers seem to have taken the opportunity to increase their margins here and abroad - rather than pick up new sales".

    In 1995 messers Hall, Wales and Yates of BoE conducted a survey of company pricing policies and published it under a title called "How do UK companies set prices" in BoE Quarterly Journal 1996 pp180-192. There conclusion was that "cost-based rather than market-lead pricing was widespread" (p190) Their fear was that unless companies changed from cost plus to marginal pricing policies it would affect the BoE efforts to control inlfation. The assumption of economists then was that prices were not "sticky" and costless so prices would react efficientlty. 15 years later and with the wealth of information and econometric models available for sophisticated pricing decision support and the opposite deflationary market, your evidence suggests that the same pattern is occuring. Ihe problem is not the avaialility of good models or knowledge about how to set prices it is more about cultural, behavioural and pyshcological cultures that exist in companies. In 15 years nothing seems to have changed, as they say: those who don't learn from history are doomed to repeat it.

  • Comment number 39.

    Stephanie wrote:
    "Yes, these are only one month's figures, which may have been distorted by the bad weather."

    Let's not get too excited! February's figures might show this is a trend?

  • Comment number 40.

    Steph your comment "This, despite the fact that the pound has lost more than 25% of its value, in trade-weighted terms, since mid-2007" Though accurate is a misnomer. Since Sterling is floating and is acted upon by traders every minute of every day few businesses use the spot price. They buy forward or hedge. It takes a good deal of time between signing a contract and delivery/payment and many deals are done on the basis of fixed prices or even in another currency. If we look back over the last 20 years you can see that Sterling has regularly fluctuated between about 1.4 to 2USD to the pound except in 1985 it dipped as low as about 1.05. Infact over the last two decades I would guess the average was about USD1.65 to the pound. On that basis we are very close to our long range average against the Worlds Reserve Currency so one would not expect our "normal" exports to fluctuate widely. This just shows we have been in long term decline for many years. Fighting wars and greatly expanding socialism is very expensive and something our wealth creating businesses couldn't afford to pay for. Now the banks have gone bust taking 25% of tax with them we can no longer continue to be the spendthrift society we have become and we will be paying the price of our hubris for many years to come.

  • Comment number 41.

    pop pop pop go the bubbles............

  • Comment number 42.

    Onward-ho has been given the go-ahead for a new £2m project and the banks are smiling again.
    THIS PROJECT STALLED THE WEEK NORTHERN ROCK CRASHED.
    Now it's back on again.


    So those banker's bonuses are making a way into the economy then. I'm glad some of my future taxes are making your days so happy.

  • Comment number 43.

    More figures and abstract concepts from an economist's point of view. I've had an admittedly quick squint at the Institute of Directors' Manifesto for Business 2010 and the CBI's Shape of Business Next Ten Years.The BBC should have a good read. Neither document references exports as driving growth near term. Much talk of less government,deficit reduction, less red tape, better education and skills, more flexibility in labour, less taxes, more productivity in public services. The CBI reckon some key aspects of the current UK economy will come under the control of overseas governments and prominent businesses in services and manufacturing may move overseas.

    Lets wake up and smell the coffee.We aint going to survive or thrive on competitive or fabricated devaluation ( or banking). You cant QE this one!

  • Comment number 44.

    #16 jauntycyclist. Ah yes the Chinese, and their inscrutible oriental ways - just ask Prince Philip.

    However you are a little early. The power$ have yet to issue the instruction to whip up a media frenzy in relation to all things Chinese. That is most likely being saved for the last act in the tragedy.

    There is no evidential reason to believe that the Chinese currency should be the strongest in the world. It is just another fiat currency and it is doomed along with all the rest. All that grows in the Chinese garden is not rosy

    http://globaleconomicanalysis.blogspot.com/2010/02/goldman-says-something-brewing-in-china.html

    http://globaleconomicanalysis.blogspot.com/2009/12/china-faces-crash-scenario.html

    Aint no way out.

  • Comment number 45.

    34. At 7:56pm on 09 Mar 2010, Voter_Graham wrote:

    It is always good to look at reputable foreign newspapers and magazines to see how the rest of the world views the state of our economy and governance. This chart from the Wall Street Journal shows how they rate our sovereign debt to be at greater risk than Italy or Spain. In fact only Ireland, Greece and Portugal are in worse situations than according to their assessment. Check it out at http://s.wsj.net/public/resources/documents/st_heatmap022010_20100223.html to see for yourselves.

    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    Yes - some interesting stuff out there although the list of countries is nonsense though - massive problems in South Smerica and hardly a mention - in North America there has always been sceptism and competition with the Euro which the North Americans see as a rival to the dominant US dollar - so the list of countries is, I think, 'political' as on the other side of the Atlantic, 'Eurozone woes' makes them all feel very much better.

    I think what we are seing is the start of verbal currency wars before the real currency wars start on the trading floors - there are negative people out there who intend to make vast fortunes in the coming years by borrowing huge amounts of money from certain banks ('our money' in effect) which shall be nameless except they will have 'men with Sachs of gold' ready to put into the mix and bet against weakening currencies so that when a national economy collapses e.g. Greece or Portugal or somewhere else - the investors move in and buy and rock bottom prices again.

    Without stressing the point further - its hard to get objective viewpoints from anyone regarding these matters - as most are paid by someone - whether they're non dom spin meister property vultures taking the UK government shilling or city analysts.

    It is worrying that the UK keeps cropping up as a high in the list sovereign debt risk - which may be a view looking forward rather than where we are right now?

    The point that is frequently over-looked is whether a sovereign debt risk needs to be actioned by 'negative trading' in order to become a real currency catastrophe - I think that it doesn't just happen by itself - debating point for another time - how much sway do the speculators have regarding the stability of individual currencies and will the banks and 'rich families' restrain themselves from this kind of potential nation wrecking?

  • Comment number 46.

    Evening Stephanie,
    may I ask, do you drive a car? Do you go shopping for food at the local supermarket?
    I notice that the prices of these items (fuel and supermarket food) are going up much, much faster than any rate of inflation. Fuel is up 20% in a year and my shopping bill has increased by about 10% in one year.
    So what is going on? Why is fuel so expensive when there is a world glut?
    My energy bill is also beyond a joke (notwithstanding that my supplier -NPower has announced a 7% cut in gas prices) it's the electricity cost that's hurting our household.
    We have a fixed income, no significant interest on our meagre savings and roaring REAL inflation.
    Perhaps you could use your good offices to do an expose on the real cost of living sometime?
    Parliament is a poor joke, the Quangos appointed by Mr Brown do not work nor produce anything useful as far as I can see, abolish them all, I say.
    I notice that Parliament found the time to vote themselves a 1.5% pay rise for this year- these MPs are really beneath contempt. Ah well, only three more days on which it is possible to call a General Election, perhaps this misery will be over soon (one way or another).

  • Comment number 47.

    What surprises me most of all, is that everyone is so surprised by this news.

    The world economy effectively died two and a half years ago when the folly of creating businesses, jobs and lifestyles based on credit-led consumption unravelled. In its place governments worldwide have resorted to stimuli packages to prop up this farce up artificially in the inane hope that at some point everything will somehow recover of its own accord and we can carry on as we did before, happy ever after.

    Dream on!

    We are simply living on borrowed time.

    The world economy without either unsustainable government support or unsustainable borrowing is not an economy.

    We need to accept that the economic worldview, which has lasted for 200 years has reached the end of the line, which is why neither left nor right has a clue what to do next.

    Time to think out of the box.

  • Comment number 48.

    When manufacturing has been reduced to 13% of GDP from 23% of GDP since 1997 and a million jobs have been lost in the same sector during the same period, I am not exactly sure why the powers that be hope for an export led recovery. Quite what a car scrappage scheme is supposed to achieve is also beyond me when practically all the smaller models in demand are imported. So hardly surprising that the trade gap has risen.
    No more boom and bust doesn't quite have the same ring about it now that Mr Brown's over-reliance on the City of London has been exposed for the sham that it was.

  • Comment number 49.

    "Britain has lost a potential £4.6 billion in export orders after Northrop Grumman and EADS, which owns Airbus, pulled out of a bid to supply air-refuelling tankers to the United States Air Force."

    http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article7054934.ece

    Surely its these types of orders that would take us out of the exporting doldrums, and this is probably more significant news than a month's trade figures.

  • Comment number 50.

    2. At 5:32pm on 09 Mar 2010, jim3227 wrote:
    Looks like this best placed economy (Gordon the saviour of the worlds words) will be in a worse state if we get him for 5 more years or even worse a hung parliment
    Indeed; will no one rid me of this turbulent priest? For that we can be responsible. Better to lose these people before they lose the wheels for our cart. The story of how they have been burning our economy at both ends and from the inside is staggering. This has been a con trick and, as Rees-Mogg recently observed, each Labour government is responsible for careless expenditure, and succeeded by a government that has to balance the books and is subjected to argumentum ad hominem abuse when it does the necessary.

  • Comment number 51.

    My question is how much lag is there in the system?

    If I have a sole customer and contract to sell at a certain price in his currency for the next 5 years, a devaluation in my currency means I will get more pounds but my export level will remain the same until the contract expires. Thus a change in the exchange rate will take time to work its way into my income in the foreign currency unless I expand to new contracts.

    Are there any macro-economic statistics that evaluate what the delay in the growth of the GDP is due to this effect?

  • Comment number 52.

    When export businesses don't exist it doesn't matter the level of Sterling, the government has been hoping for some over night miracle. The reality is the government hasn't done anything for years to grow or support export businesses. Just compare the situation with export credit, between the German approach and UK. This or a future government needs to put together a multi-year industrial and export strategy.

  • Comment number 53.

    #27 Gary Mellon. It can and will become a lot more difficult. Did "Bullyon" Brown sell gold because he was stupid, or did he sell gold because he had received orders to do so?

    http://gata.org/node/8405

    Gold mines are often not what they seem - the derivatives boys have attatched themselves to the mines. Check out Barrick and remember caveat emptor.

  • Comment number 54.

    This might have been said already, but some obvious points:

    What do we export? I know we put together cars and move them on....but does that kind of activity count as exporting? I can hardly think of anything in the high street that is actually made in the UK...and as we have no primary resources to speak of most of what we do make requires imported raw materials.

    We have some big earning industries...tourism being one. The Media industry being another. Both industries only require natural talent or resources (eg tourist attractions) that we already have. Is the government promoting investment in these?

    Education and training? If you were a highly intelligent yr 8 kid what would you / your parents choose....design technology...or a career that led to the finance industry or property development?
    ?
    Does it matter how much the pound depreciates...it still won't go down far enough to allow us to compete with the artifically weak Chinese currency.


    I could go on.......

  • Comment number 55.

    35 Arny5000 "Bah humbug. I'm only a layperson but not convinced there's much of a story here. It's just one month's figure, in January"

    39. dontmakeawave

    'Stephanie wrote: "Yes, these are only one month's figures, which may have been distorted by the bad weather." Let's not get too excited! February's figures might show this is a trend?'


    The trend has been there for some time.

    From 2006 to 2008 the UK trade deficit rose by 55%:

    2006 > £60 billion
    2007 > £89 billion
    2008 > £93 billion

    Figures are from a very interesting June 2007 article in Moneyweek on the UK's growing trade deficit.

    "As Elliott and Atkinson put it, the New Labour view is that the UK is now a “knowledge economy”... But... the knowledge economy will not be enough to balance our finances. Even if you include services the UK exported last year, the trade deficit only falls from 5% to around 4.2% of GDP for 2006."

    http://www.moneyweek.com/news-and-charts/economics/the-uk-trade-deficit---does-it-matter.aspx


    The 2006 deficit represented 5% of GDP. According to investment guru John Mauldin, no country has “ever run a [trade] deficit of more than 5% without at least a 30% drop in the value of its currency”.

    A 30% drop in the value of sterling ? On top of the 25% drop in sterling due to QE ?

    What does an aggregate 55% sterling devaluation do the price of a weekly shop when 40% of our food is imported? If nothing else, we will all be spending a lot more time in the garden...

  • Comment number 56.

    Another Labour government, another economic crisis made far worse by the socialist fantasy. Ask yourself: where is the money to come from to pay for all the spending? The answer: the debt has been projected into the future, and our children and their grandchildren will be paying for the Blair-Brown years for the next few generations.

    Labour have triumphed at one export type: War. Under Labour, the UK has exported war and misery to new parts of the globe. Reaching these hitherto untapped markets has cost us dearly. Are we strong enough to be a war economy?

  • Comment number 57.

    "Surprise widening". I wonder WHO it is was surprised. Every non-Labour party leaning prediction I have seen is of only bad and worse economic news to come for the UK.



  • Comment number 58.

    49 jonearle

    "Britain has lost a potential £4.6 billion in export orders after Northrop Grumman and EADS, which owns Airbus, pulled out of a bid to supply air-refuelling tankers to the United States Air Force."

    I think you will find the order was only cancelled due to the exceedingly bad weather in January (which is responsible for every other bit of bad news these days...)

  • Comment number 59.

    44. armagediontimes 'There is no evidential reason to believe that the Chinese currency should be the strongest in the world. It is just another fiat currency and it is doomed along with all the rest. All that grows in the Chinese garden is not rosy'

    It's a lot rosier than it is elsewhere. Their SEZs are, I suggest, serving as sink holes or 'singularities' for capitalist profligacy. That is, they are doing a very good hit job on their ideological enemy using capitalism to destroy itself. Deng said they could always kill the flies later. The Chinese are clever, they work as a nation state. They have managed their population whilst the liberal-democracies have let them deteriorate or be sabotaged, take your pick.

  • Comment number 60.

    47. At 8:49pm on 09 Mar 2010, DHA wrote:

    What surprises me most of all, is that everyone is so surprised by this news.

    >>>>>>>>>>>>>>>>>>>>>>>

    Que?

    Some of us have been saying this about the dire situation of the UK economy on 'Stephanomics' and other blogs for well over a year now and some of us like myself have been verbally attacked and called insane, delusional etc for doing so..

    I'm sorry but we ... had got it right back in 2008, and 2009 and now 2010!

    It's about the 'fairness', 'moral compass' and remember ...'prudence' that's how the UK is now worse off than it ought to be

  • Comment number 61.

    Well,Well - we have an ever widening trade gap - why is anyone suprised - we don't produce anything that China can't supply cheaper for the mass consumer. The rest of our exports will be tied up with flagging demand around the world - aerospace,defence,bio-technology and financial products.
    Now that we have allowed our manufacturing, firstly to be bought up by every foreign corporation and then allowed it all to be moved east - what a suprise that we have nothing to export - also no R & D to create anything for the future - We are a bankrupt nation and soon the service industry economy will also collapse because we will have no wealth creation to allow us to pay for it.

  • Comment number 62.

    It's a tightrope act - the BOE must stop arbitrarily holding down the base rate, in the hope that cheaper exports will drive UK Plc. out of the slump. If we continue like this 'Stagflation' is most likely - in fact we may already be experiencing it!

    Commodities are going to get more expensive as the rest of the world's demands go up, so we will need a higher valued pound to maintain comparable purchasing power. It's not just oil this time. The UK could and should be leading the world in advanced energy capture/conversion and generation - our European cousins aren't just sitting on their hands either. This is a time for radical innovation (something the people of UK are in fact good at!).

  • Comment number 63.

    23. At 7:13pm on 09 Mar 2010, onward-ho wrote:

    B Yes the property scene was not as cheery but the fact remains that most estate agents expect prices to keep on rising this year...

    -----------------------------------------------------------------

    When Estate Agents, Banks, Surveyors and the CML start talking up House Prices look for the common denominator, vested interest comes to mind so Buyers beware.

  • Comment number 64.

    But I thought that we entered this recession better prepared than most other industrialised countries? Or did I dream that I heard the Prime Minister say this if not in my words - something pretty much like them.

    I do recall that it took a long time for Gordon Brown or Mervyn King to acknowledge that we were in recession. No surprise then in what Stephanie has penned above - incidentally a good article I think.

  • Comment number 65.

    One gets the feeling that even ardent political defenders of the government are sensing the game is up.

    For the first time I sense that I don't need to be critical of Stephanie anymore of shall we say being selective in her focus. I must say I was surprised having called for this story to be covered all day on the previous blog comment for Stephanie to finally report on it.

    The economic delusion may finally be being uncovered. People might just sense that the 'good news stories' have just been that - stories of the highest spin for as long as I and others can remember.

    When you also consider that NHS cuts of £10-20 billion which are already underway but are being blanketed from mainstream news amongst other stories that are beginning to seep out, and the rise of yet more strike action this time in the rail industry - one senses that the ill-informed electorate just might begin to feel hoodwinked.

    The export 'growth story' has just been another cynical spin on the back of so many spins when economic fundamentals are comsidered, as a number of contributors have already commented.

    I denote a real lack of any left-leaning contribution in recent days - save for onward-ho who continues to feed on magic mushrooms.

    Perhaps now we start to deal with the truth...........

  • Comment number 66.

    If we were exporting commodities then a falling exchange rate would automatically lead to a surge in exports as we could reduce prices and take a greater market share. Perhaps the reason it is not is that we are now largely exporting differentiated premium priced products (otherwise we would have lost out to China years ago). Pricing theory suggests that we should not set the price of such products based on the cost to produce but on what the customer is willing to pay. The price customers are willing to pay in say dollars does not change when the exchange rate changes - however, happily, UK firms will make higher profits and reinvest this to grow more quickly than foreign firms over time.

  • Comment number 67.

    This country might be able to create and export if it wasn't for the Straight-jacket of 10 years of increasing red tape and bureaucracy, lead by a Control-freak Gordan Brown. However, if we vote for a bunch of spoilt rich kids, the Conservatives, they will likely crash the economy by help making the wealthy become even richer (at the expense of the workers) based on the mistaken belief of the 'trickle down effect'; every one knows the rich are the stingiest members of society, just take Non-Dom Lord Ashcroft for example who will spend millions helping his buddies, but won't pay TAX for the likes of you and me. QED)
    Question: Has anyone tried to work out what the total cost (direct and indirect, on government and business) has been for implementing the last 10 years of added bureaucracy? I would love to know.

  • Comment number 68.

    When as a country you import so many necessities (energy, food, raw materials for the handful of value-add manufacturers left)and you have a massively negative balance of trade (which my elementary grasp of economics suggests means you import massively more than you export), it's not a huge leap of imagination to see that it's going to hurt and not just in the short term, assuming the markets we export to are still consuming.

    Oh, the countries we export to are all in the "same" brown stuff we are? (Actually they're only paddling around the edges mostly, where we're being sucked around the U-bend). Then exports aren't going to rise in a major way either are they? (The sterling value of them might, but then sterling is now approaching parity with the sheet of toilet tissue).

    Even if there was any manufacturing capacity left. Which basically there isn't.

    If it wasn't so serious, it would be funny. Not that I expect any incoming government to do anything better (or worse).

  • Comment number 69.

    As someone who has sizeable export orders, but has tried every high street bank to finance them, and been turned down, I'm not in the least surprised the gap has widened.

  • Comment number 70.

    Very interesting, so where do people think future growth in 'real' employment will come from? I mentioned the other day on the BBC's 'banking' blog (if its not about banks or bonuses guess the author would not be interested) the closure of a high tech R & D facility with the lose of 1200 jobs, I have no personal involvement in that site but it was an observation because these are surely the sort of jobs that can benefit the country and am concerned when these sorts of sites are closed down

  • Comment number 71.

    Stephanie:
    Could yourself or someone do a piece explaining the different definitions of National Debt, I have read numbers for the UK ranging from 56% to 365% (scary - http://en.wikipedia.org/wiki/List_of_countries_by_external_debt) of GDP. Debt as defined by the Labour government, debt as defined by Mervin King, Debt as defined by the European union. Talk about confusion. How can anyone have a clear picture, or understanding when there are so many definitions, and different ones are used when talking about different countries. Am I fantasising or is it possible to have a table with countries down the side and different definitions of debt across the top, and a note explaining how worried we should be about each column.

  • Comment number 72.

    64

    Gordon Borowin just calls it a WORLD recession, even now..to be fair Mervyn King did talk of it before it happened, although rates weren't cuyt quickly enough for my liking in 2008

    65

    In general, I truly hope you are right. How the Labour Party can be more trusted on the Economy is beyond me

    The next polls will be interesting

    I feel that the usual economic 'rules' don't apply due to the mess we are in, and we need to think outside the box

    The fact is there is no single 'silver bullet' solution, we need the opposite to a death by 1000 cuts..not sure if there is an appropriate saying

    The TV debates will be difficult for Brown, as if the rules are equitable he will find it difficult to 'bluster' his way through

    I don't share the view there is no way out, although it is pretty obvious we are in for tough years to come, and I do not underestimate that

    No wonder Mervyn King called it the 'nasty decade'

    I just feel the deflationary pressures in the economy will cancel out a fair chunk of the inflation

    In keeping with this economic meltdown, our public sector start striking!!!!

    Our MPs get a pay increase!!!

    Talk about missing the public mood

    Mind you, maybe it is so big now, that the public sector is the public mood

  • Comment number 73.

    We manufacture and export 95% of what we make, and have done since we started in 1992. And there are a lot of SMEs that do this.

    However, in my experience these factors are why the figures aren't so good:
    1) the States our biggest market has only just started to buy again, so the up curve is only just starting.
    2) We've contracted, and are only just starting to grow again. I can't/ won't borrow, so all expansion will have to be paid out of cashflow. Don't expect miracle growth.
    3)GBP has been overvalued for the last 3 years, so our foreign prices have had to be reduced compared to the locals to be competitive. Now the pound is back at nominal sensible values, we are slowly adjusting prices. It will take some time
    4)While there are many thousand exporting SMEs, mostly in some form of engineering, there are 60+ million Brits. Far too many people involved in moving things round in circles. We simply don't have enough industry. Think 10-20 years of sustained push to remedy this.
    5)Altough I have world beating products, I can't sell into China or India. They have a good personal luxury market, but a low internal quality business market. Think 10 years again before they will look to buy precision business tools across all sectors.

    So don't knock us, we're doing our bit, but the rest of Britain isn't. And it's going to take a generation before we can realistically change this. I'm going to continue to make our balance of payment better, extracting money from other countries, but I can't feed all of us...

  • Comment number 74.

    Apologies for any typos in the above: I hit the post button before the preview...

  • Comment number 75.

    Stephanie, you make no mention of the J curve effect or the Marshall Lerner condition, is this in play here? The depreciating currency may be expected to worsen the trade balance in the short-term, as existing trading contracts are locked into, but do you think there will be an improvement in the longer term. I suspect the real problem is that the elasticities of exports and imports is overall still inelastic. Of course our export markets are only slowly awakening from the slumbers of recession and that is hindering export led growth.

    The comment on businesses increasing their prices to take advantage of the Sterling cost advantange still smacks to me of short-termism. A decade ago the strong pound and El Nino were blamed for everything, but that proved to be merely a smokescreen hiding the fundamental issue that the UK has a balance of payments constraint to growth. The poverty of our manufacturing sector remains unchecked. Easy enough to achieve a buoyant domestic sector, but imports get sucked in, weakening GDP growth. Our manufacturing performance continues to decline and there seems no coherent strategy from government to improve the non-price competitiveness of our exports. This remains the biggest conundrum and illustrates starkly the structural weakness of the UK economy in the 21st century.

  • Comment number 76.

    Whilst everyone is moaning about Gordon Brown, they all seem to have forgotten one or two points:
    The recession was global and tiggered by primarily American Banks (well known socialist institutions)
    It was a Conservative government that lead the way in the deregulation of financial institutions (not Gordon Brown)
    It was a Conservative government that destroyed most of our manufacturing base whilst on an idealistic "crusade" against the trade unions.

    I am undoubtedley worse off because of the current economic situation but I certainly don't blame Gordon Brown and certainly don't think David Cameron and his cronies can fix it.

  • Comment number 77.

    #38., coznz

    Why so suprised? Before now I have had to take pen and paper out in the boardroom of a FTSE company to explain the theory of marginality and marginal cost pricing to senior executives! Now, what chances is there of then understanding or even employing market-led pricing strategies.?

    One SME owner on this board even said that the customer was not the most important factor for his organisation and others agreed with him! Studies by the Institute of Directors, Chartered Management Institute and the Chartered Institute of personnel and Development all clearly show how far behind the UK lags when it comes to professional business management. So I suppose that we can be thankful that they have achieved the little that they have.

    Our chances of an export led recovery are slim to minimal at best. Yet the whole sector complains about the barriers put in their way; too high a tax rate (even though their total tax liabililities are veru comparable wuth our European counterparts), under-qualified workforce (see above) and too costly labour rates (when UK executive pay is already amongst the highest in the world).

    Now I am sure that this post will provoke a rage. I will be accused of being either a marxist or a socialist or even wallowing in the politics of envy. Well I certainly nor envious and have earnt more money than many posters here will ever earn. I am certainly not a marxist. I am surely a socialist though my attackers appear to forget that socialism is best effected in a mixed-economy. Instead of bellyacheing that they are the wealth creators they should take a good long hard look at themselves and take the moat/plank whatever out of their own eyes!

    I am not saying that there are many in the private sector who do not work hard, who do not make sacrifices and who really have a concern for the wellbeing of the country as a whole. I am saying that all that stops the private sector is not purely imposed upon them by either the government or a lazy workforce.

  • Comment number 78.

    #28 >>I starting to think that the government has turned this country into a fledgling banana republic. We're going down fast.

    fledgling ?? We are getting to a Zimbabwean style disaster !!

  • Comment number 79.


    I think it's great that Comrade Brown abolished boom and bust. Looking at the situation we're in now I dread to think what it might look like had he not abolished the bust.

    Or perhaps he just abolished Tory boom and bust (which I think were his words) and replaced them with Labour boom and total collapse. That seems more likely.

    I can go back to sleep now.

  • Comment number 80.

    "Maybe we can't devalue our way out of trouble after all. "

    Sound of a penny dropping.

    Devaluation has never worked for the UK in my experience.

    We do not have a critical mass manufacturing sector exporting high-added value goods like the Germans.

    Rolls Royces and Burbery tend to be more damaged than helped by devaluation.

    What devaluation does is import inflation.

    History repeats in this country but we never learn.

    The terrible truth is the UK economy is a basket case.

    It can be fixed but it needs major restructuring which will take at least two generations.

  • Comment number 81.

    #76
    "Whilst everyone is moaning about Gordon Brown, they all seem to have forgotten one or two points:
    The recession was global and tiggered by primarily American Banks (well known socialist institutions)"

    Yes, yes we all know this.

    But an economic storm will hurt 'economic cripals' more than the 'economic able bodied.'

  • Comment number 82.

    44

    ...There is no evidential reason to believe that the Chinese currency should be the strongest in the world. ..

    yes there is. if it was floated it would rise so fast people would think it was the numbers on a petrol pump during an oil price bubble.

    the currency rate in part reflects the confidence investors have in that country and where interest rates are more likely to rise. given the choice between uk and china which would you bet 10 billion on having a growing economy in the next 2 years? That is why it would rise.

    by not having a floating exchange rate china is conducting economic warfare on the rest of the world. until it is floated worldwide taxes should be put on all chinese goods to reflect where the exchange rate should be. otherwise the uk will just keep inevitably declining as it unable to compete with the rigged market.

  • Comment number 83.

    #43 >>Lets wake up and smell the coffee.

    I would love to but the cost of coffee is getting prohibitive these days !!

  • Comment number 84.

    Hi Stephanie.

    I'm a bit puzzled at the idea that the devaluation has something to do with the British economy.

    If I remember correctly, sterling reached its peak a couple of years ago because currency traders were using it as a proxy currency for the euro. The dollar was looking unattractive at the time, and the euro was a bit too volatile.

    If indeed that was the case, perhaps the pound's long term devaluation has more to do with the US and Eurozone economies than Britain. Certainly, those posters who see the devaluation as an indictment of Britain's economic failure might do well to consider this.

  • Comment number 85.

    "Supposedly, that kind of optimism about future earnings has helped drive the recent rise in the FTSE. Though today, even that recent rally seems to have petered out.

    Oh yes, and there was a disappointing housing-market survey, and some words of warning about the deficit from Fitch, the leading ratings agency. All in all, not a good day for UK plc."

    ========================================================================

    When the history books are written 2009 and the 2010 pre-election period will be known as the 'Dead Cat Bounce Era'.

    I mean 0.5 per cent base rate and 2BN of QE has had some effect.

    Sharp drop from now and then a slow steady decline. I see no grounds for optimism only stagnation and inflation.




  • Comment number 86.

    #44 The last link contains two apparently contradictory headlines

    China Plans To Control Property Prices

    and

    China Is Overbuilding Already

    How can there be a property bubble when there are masses of empty properties ?? Something doesn't add up !!

    What I understand is that the Chinese are trying to cool their property market. One way is to reduce the demand by reducing the number of people moving to the cities. And the way to do that is to spread the government stimulus throughout the countryside which they have done. Unfortunately, they forgot that by keeping the workers in the countryside, they deprived the factories of their needed workers, so there is a sudden sellers' market in the labour market.

    Swings and roundabouts, I suppose.

  • Comment number 87.

    Every week Fitch warns on the deficit but stresses our AAA rating is safe.

    Every week the Chairman of BasketCase United warns on recent poor results but stresses that the Managers job is safe.

    Hmmmm.

  • Comment number 88.

    #10
    "This news has ramifications for the already overcooked growth forecasts which are designed to arrest the UK deficit/debt.

    Some hard analysis needs to be caried out. Time for wishful thinking is over....."

    Unfortunately this urgent task will not start until the 'fat lady sings' on May 6 or whenever the election is held.

    Until then just fudge and the markets are watching.

  • Comment number 89.

    #61 >>We are a bankrupt nation and soon the service industry economy will also collapse because we will have no wealth creation to allow us to pay for it.

    Oh, I think the service industry will go on for quite a good, long while; so long as there is demand for the world's oldest profession !!

    We would have had a knowledge-based industry, too but this government wrecked education with their obsession with targets and quotas (oh, so very Soviet) !! It appears that they think meritocracy is a dirty word !!

  • Comment number 90.

    #64 >>Or did I dream that I heard the Prime Minister say this if not in my words - something pretty much like them.

    Of course, you did !! The Ministry of Truth categorically refutes the allegation that the PM ever made such a statement. They might change their minds tomorrow and say something else !!

  • Comment number 91.

    #65 >>One gets the feeling that even ardent political defenders of the government are sensing the game is up.

    Guess who were the first to attempt a hazardous crossing into Allied-held territory when the Russians were approaching Berlin ??

    >>I denote a real lack of any left-leaning contribution in recent days - save for onward-ho who continues to feed on magic mushrooms.

    Surely not !! Not least because its illegal since they are an endangered species because of rapacious harvesting (probably for sale near Westminster) !!

  • Comment number 92.

    Isn't it ironic that China now holds the mortgage on the capitalist system... if they ever wanted to prove a point re their "superiority" they could always pull the final rug out, at a cost to themselves sure, but if it were to destroy an opposing philosophy, might they consider it?

  • Comment number 93.

    #72 >>The fact is there is no single 'silver bullet' solution, we need the opposite to a death by 1000 cuts..not sure if there is an appropriate saying

    It's called the "Guillotine" and I've been suggesting that we need one up Tyburn Hill (aka Marble Arch, these days) !!

    >>In keeping with this economic meltdown, our public sector start striking!!!!

    In keeping with the reality meltdown, our media pointed fingers at the Greek public sector strikes !!

  • Comment number 94.

    #76 - Andy

    Look at the Balance of Trade figures and how they've moved since 1997.

    The "everything's great, everyone deserves everything" mentality was encouraged for its short term feel good factor; driving up personal and government debt.
    We were already spending beyond our means when the bubble was fully inflated, and thus massively geared and vulnerable to any economic downturn.

    The economy was run on a high risk basis for political capital, the "economic miracle" was a lie, merely asset inflation based on excessive money supply, ever heard of "the Emperor's new clothes"?

    At best inept, short term economic management based on wishful thinking and a wilful denial of reality, at worst; deliberate neglect and deceit in order to buy votes and secure re-election... until reality eventually bites.

  • Comment number 95.

    #82 >>by not having a floating exchange rate china is conducting economic warfare on the rest of the world. until it is floated worldwide taxes should be put on all chinese goods to reflect where the exchange rate should be. otherwise the uk will just keep inevitably declining as it unable to compete with the rigged market.

    02-01-01 02-01-10
    CNY 12.38450 11.03680
    AUD 2.67820 1.80130

    Looks like we have to tax the damn Aussies too since they are also conducting economic warfare, aiding and abetting the Chinese !! Probably trying to get revenge for being sent to Botany Bay !!

  • Comment number 96.

    am i dumb ??? why not mobilize the best resource any nation has .. the people and build a land worth calling home.. stop making enemies, stop giving our wealth to the greedy.. provide for the needy.. get out your boxes and rebell against the sell out of our economy......if we cannot get our land to be self sufficient how can we have surplus to trade. its really all so simple.. or am i just dumb.

  • Comment number 97.

    #92 >>...but if it were to destroy an opposing philosophy, might they consider it?

    Nope !! This is contrary to the teachings of Sun Tzu !! "Why destroy the country and get only ruins when you can destroy their leaders and get a grateful population on your side" !!

    (See The Art of War by Sun Tzu; circa 500 BC)

  • Comment number 98.

    #96

    Its because we're no longer prepared to work as hard as much of the rest of the world for as little...
    ..so we consume more than we produce, and borrow to do it.

    Our entitlement mentality, combined with the pressure caused by demographics, makes us a lame duck.

    The City of London and its cascade effect has been propping us up for years.

    At least there's one thing, if enough people decide to seek sunnier climes, it might allow house prices to fall to a realistic level.

  • Comment number 99.

    #96 "the best resource any nation has .. the people"

    Are you suggesting reintroducing slavery?
    or the Chinese approach of selling the organs of executed criminals?

    When we can buy things cheaper from "abroad" than what people fee they deserve for doing the work here, its difficult to rationalise "mobilising" the people; especially when many see no reason to be mobilised if others keep them.

  • Comment number 100.

    #97 >> ""Why destroy the country and get only ruins when you can destroy their leaders and get a grateful population on your side" !!"

    Couldn't the destruction of capitalism, or at least the political structures and major corporations based on it be considered as doing exactly that?

    Just enough collapse and chaos and then "come to the aid" of the people...

 

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