Tuesday, Mar 30, 2010
Unexpected?
BBC News: UK economic growth unexpectedly revised up to 0.4%
I don't know much about the construction industry but services and agriculture have definitely benefited from the devalued pound. My international customers (service industry) are effectively paying me 25% to 30% less than they were a couple of years ago. We have consequently attracted more business. UK fruit and veg must also be more attractive to foreign markets. Bringing in more foreign currency for our goods and services is never a bad thing
Posted by flashman @ 10:07 AM (1371 views) Add Comment
12 Comments
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1. flashman said...
I forgot to say that the article credits agriculture, services and construction for the upward revision
2. mark said...
funny really how before an election all the gold/rose glasses come out, bet your bottom dollar things will be revised downward after election..
speaking to people in the supermarket last night, the couple of girls we spoke to hate labour... they think they have stolen their babies to hear them talk...lol
3. estrader said...
"have definitely benefited from the devalued pound"
And many others who saw The writing on the wall ;)
4. fallingbuzzard said...
More or less unchanged on a current prices basis!
5. This comment has been removed as it was found to be in breach of our Blog Policies.
6. stillthinking said...
Devaluing the pound doesn't change the underlying reality of trade. We swap real stuff for real stuff, whether service or otherwise. The only benefit from devaluation comes from the losses of those holding sterling.
If I swap an english apple for a french orange, and this is a fair exchange, then devaluing the barter medium can only ever have a temporary distorting effect on the relative valuations. We have -not- price adjusted uk apples to 3/4 of a french orange, we have made a change to the medium of transaction.
If you make more money in a currency that has devalued, then you are not really making more money....and if you invest in additional capacity in the UK on the basis of inherently one-off currency events then you could be making a mistake.
Devaluation is not a motor for economic growth. its just fiddling with numbers, and in the case of sterling, numbers that people care less and less about because they want out of the currency.
7. ontheotherhand said...
"Bringing in more foreign currency for our goods and services is never a bad thing". I disagree. I am paid in pounds and I have savings in pounds and the government has trashed them. Everything I buy that has some foreign input is more expensive than it otherwise would have been, most obviously a foreign holiday, but by gas and electricity and petrol bill and even clothes and everyday stuff.
The government earns itself a bad name with foreign bondholders when it, in effect, partially defaults by trashing the currency, and so the interest we pay on future issues will be higher than it otherwise would have been as well.
In short, the goverment buys short term gains in UK jobs by stealing the value of the money held by savers and reducing the value of the salary of all the other workers.
I am not saying that any devaluation is a bad thing, I am just balancing the argument by pointing out the negatives to a devaluation.
8. flashman said...
stillthinking: I take your point but you might have missed a dimension of this story. I, and many others, have experienced a very real benefit. I sell my services to overseas customers. They are delighted by how relatively cheap my services have become to them (my competitors are mostly in the US). As a result, in the height of the finacial panic, we had more work than we could cope with. Our turnover has gone up more than 30% and we have employed extra staff compared to the year before the devaluation started.
The benefit for the country is that I employ more people (less benefits paid out and more income tax receipts) and I pay more corporation tax. The benefit to me is that I have taken customers from my foreign competitors and am more profitable. This extra profit more than compensates me for any marginal increases in the price of my next television and for the extra cost of a beer on my next holiday. I also am able to spend more locally which obviously benefits local businesses.
If the currency had appreciated you would have to reverse everything in the above paragraph. I might have let staff go who would now be on benefits and I would have paid less tax and spent less on local businesses.
I suspect that the devaluation is partly responsible for the unemployment numbers that have thus far refused to conform to the earlier predictions of 3.2 million
There is always a downside to everything but there is plenty of good in this story.
9. cyril said...
this is softening us up for further currency devaluation to inflate away the debt
10. flashman said...
onetheotherhand: Sorry I posted before I had read your post. Yes, there is definitely a downside. I posted this article because I have always thought that the benefits versus disadvantages of currency devaluation, makes for an interesting discussion.
I always remember that German manufacturers did very well when they had a very strong currency before the Euro. Their product was very expensive to foreign buyers but they compensated for this by buying all their raw materials from countries with less valuable currencies. I think that you can be considered to be on the right side of the equation if the state of your currency allows you to employ more people. Of course this only works if you have product and services that people want to buy. For example, the oft-quoted Zimbabwe has a devalued currency but very little product to offer. By contrast, the 1980s Germans had great product to sell and used their strong currency to buy cheap raw materials. As stillthinking intimates there is a balancing element but for me, if a countries currency situation (strong or weak) allows for more employment then, on balance, it is a win
11. paranoia blue said...
I have never lived through a period in my life with so many “unexpected occurrences,” or “slightly ‘less bad’ results!”
12. alan_540 said...
I agree... Slowly, slowly catchy monkey.