Alex Broomer: UK economy often in best shape with a weak pound
On top of a weakening pound: UK economy often performs better when sterling is allowed to depreciate, says Alex Brummer
For families planning a vacation abroad this summer, a drop in the pound will not be welcome.
It is one of the paradoxes of our times that while headlines swirl about the cost of living, there is enough money to overflow airports amid rising demand. Passengers do not seem to be facing much trouble.
The fall in sterling against the dollar since the pandemic, and later against the euro, is largely attributable to political factors.
Rise: At its lowest level since the fall in sterling against the dollar, and later against the euro, largely attributable to political factors
Items cited include a Tory confidence vote in Boris Johnson, a rewrite of the Northern Ireland Protocol and now Nicola Sturgeon’s renewed effort for a Scottish referendum.
Such precise decisions don’t make a great deal of economic sense.
If Northern Ireland joins the Republic of Ireland, or Scotland breaks ties with England to become an independent Nordic-style state, the rest of Britain may benefit.
Fiscal subvention would disappear from Westminster, thereby strengthening Sterling’s foundation.
The current weakness of the pound is similar to the story of the dollar. The greenback is rising on expectations of a tougher tightening by the Federal Reserve.
That expectation has already pushed the yield on the ten-year US Treasury bond to a high of 3.419 per cent in latest trading.
Ahead of the Bank of England’s interest rate decision yesterday, the 10-year gilt yield has risen sharply to 2.5 per cent. This is still a full point that can be earned on US bonds.
Plus, it’s not just the pounds that suffer. The Japanese yen this week fell to its lowest level against the dollar since 1998, with key officials declaring they were ready for an ‘appropriate response’.
There is no immediate risk of disintegrating Japan, which flies in the face of the idea that the pound is distinctly politically weak.
There is a positive way to look at the weakness of the pound. That could add to the price of imported oil, which is quoted in dollars, but UK North Sea drillers are also beneficiary, and could boost income from Rishi Sunak’s unexpected tax.
More important are the broader business implications. A cheaper pound would make UK goods and services more affordable overseas and should be good for exports, which have lagged behind as a result of Brexit disruption and Covid.
Black Wednesday, when the pound was taken out of the exchange rate mechanism in September 1992, is seen by many as White Wednesday as it marked the beginning of an increase in exports and a strong growth led by then-Chancellor Ken Clarke. Gave speed
A strong pound can be interpreted as a measure of economic success.
But as an open economy, Britain’s performance has often been at its best in decades when the pound has been allowed to depreciate.
wrong bus
The least that can be expected of UK listed companies under siege is that the board of directors has put up a good defense.
David Martin, executive chairman of First Group, did exactly that when he turned down a £1.2 billion bid from US private equity conglomerate I Squared Capital Advisors.
The company has backed that decision with a startling set of results, demonstrating a return in the form of First Bus, which runs services from Aberdeen to Cornwall.
The company is also looking forward to the award of the multi-year Great Western Railway (GWR) franchise.
Compare this to the response to the Go-Ahead Board chaired by Claire Hollingsworth. It is almost a departure from the Australian-Spanish dialect by Kinetic and Globalavia.
Buyers are making all the right noises about preserving the Newcastle and London offices, retaining existing management and launching a campaign toward green electric and hydrogen vehicles.
But at the time of leveling it would have been encouraging if Go-Ahead had made a case for British-owned local champions instead of counting banknotes. Sellers have to be careful what they wish for.
In March, Stagecoach opted for a sale to German asset manager DWS, when a domestic merger with National Express was on the table.
DWS is at the center of a major controversy after police and regulators raided their offices on charges of misselling ESG investments.
A massive shareholder rebellion ousted the senior manager and supervisory board. Maybe Stagecoach and its compliant investors should do the due diligence again.
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