Concerns after sterling falls in value to 30 year low
ONE of Scotland’s leading economists, Professor Mike Danson, has warned that rapid devaluation of the pound points to “fundamental weaknesses” in the UK economy.
The comments come after sterling fell in value to a 30 year low yesterday [Tuesday 11 October], with one pound now valued at less than one Euro in some airport currency exchanges.
The collapse of the pound below $1.23 saw share prices jump at the London stock exchange, as traders made short term gains on the devaluation, which makes overseas earnings more valuable.
Danson warned that the short term boom was underscored by deeper economic problems and a lack of political leadership in the wake of the UK’s vote to leave the EU in June.
The Professor of enterprise policy at Herriot-Watt University said: “It is a sign of the fundamental weakness of the UK economy, which is further exposed in global markets with the loss of economies of scale, tariff protection and integration in wider supply chains.
“The devaluation is entirely due to Brexit and the inept response to it, which has further damage confidence. The lack of leadership and vision augurs badly for even being able to address the challenges of Brexit.”
“The lack of leadership and vision augurs badly for even being able to address the challenges of Brexit.” Mike Danson
“The long run UK economy is severely damaged. You can see this in work by the Treasury, the Fraser of Allander Institute, Institute for Fiscal Studies and more. So the domestic economy will be affected and multinationals trading through the stock exchange partly affected. But they will also be able to move their operations abroad.”
Danson went on to say that the devaluation pointed to the future of the UK economy as one based on an “increasing dependence on low value, low wage, low productivity production”.
The devaluation of the pound began in the immediate aftermath of the UK’s decision to leave the EU. However, its decline against other currencies, including the euro, has increased in rapidity since the Conservative conference in Birmingham last week which saw Prime Minister Theresa May hint at a form of ‘hard Brexit’ which would involve excluding EU migrants from the UK at the expense of Britain’s membership of the European single market.
Ben Wray, head of policy at the Common Weal think tank said: “We don't yet know what long-term impact the fall in the pound will have – if it continues to fall further global markets will view it as a major down-grading of the UK. For an economy massively over-reliant on international cash flows into the City of London, that could be disastrous.
“On the other hand, a weak pound provides an opportunity – the UK economy has been desperately in need of re-balancing by increasing manufacturing exports and reducing its over-reliance on foreign imports through increased domestic production, for example in green energy. Historically low interest rates could allow the government to make this big investment cheaply.
“But relying on the Conservative Government to do this would be naive in the extreme. The Scottish Government needs to find a way to do it; one part of that should be to establish a Scottish National Investment Bank, as advocated for in the Common Weal and New Economic Foundation's report published today [12 October].”
The policy for a Scottish National Investment Bank (Snib), has gained traction among politicians, including Labour leader Jeremy Corbyn. The Snib would address imbalances in investment by lending at affordable rates to smaller business concerns.
Picture courtesy of tom_bullock
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