9 thoughts on “The UK Balance of Payments remains a concern for growth and the Pound

  1. Hi Shaun,

    Do you really think that leaving the European Union and going back to EFTA will result in trade declining with Europe ?

    I can certainly predict political interferance though.

    I can see we will trade with the United States of Europe just like we trade with the United States of America.

    as for our useless HMG spouting ” “march of the makers” or indeed “rebalancing”” well who can we believe ? They did nothing at all except talk , a bit like Carney , and we expect something to happen?

    Watch what they do , not what they say !

    Remember Gordon the Gormless pontificating on how we were going to build wind-turbines then promptly bought German made ones……

    Or use rebuilding our Nuclear industry by getting the Chinese to do it ( and lets hope they’re better at that than they are building motorbikes ! )

    Perhaps they should have imputed more drugs in that GDP export figure , after all most of it is fantasy football anyways.


    • EFTA means the trade rules stay the same, albeit that the UK won’t have representation in Brussels to influence EU standards.

      Total exit and no trade agreement may change the trade figures, but Britain doesn’t export food – (an area where the French have strong protectionist rules) and Germany won’t want trade barriers affecting their BMW / Merc & VW sales in UK.

      So I assume that the scare stories of trade problems are exaggerated by politicians with ambitions to swill from the EC troughs.

      • Hi Guys

        Just to say that the UK has been exporting less to Europe as defined by the European Union. We exported some £165 billion in 2011 but only £134 billion in 2015. As we imported more we have been quite a GDP boost for them and are therefore much better Europeans that we give ourselves credit for.

        • Given that total EZ GDP for 2014 was 13.4 trillion euro (£10.45 trillion), I doubt that total net EZ exports to the UK of £260 billion (330 billion Euro) or 2.6% of EZ GDP is going to figure much to the Europeans, especially when you consider the UK is busily exporting circa £240 billion or 15% of UK GDP to the EZ.

  2. Shaun,
    If the UK is part of a supply chain then higher import costs ( due to a sterling crisis) would need to be reflected in the value of the re- exports so devaluation no longer simple import reduction / export increase perhaps?
    Would devaluation limit HMG to now increase fuel duty ( sold as green response to cheaper fuel?) and sugar tax ( health issue) in forthcoming budget – every little tax helps!

    • Hi Chris

      i think that you make a good point about the supply chain and if you add in the UK’s propensity to institutionalised inflation in the mixture I think that our pancake (sorry) goes a little flat. We lose the gains quite quickly. We did better post the 1992 ERM exit but it would be quite a gamble to rely on that based on more recent history.

      The taxes you mention would be yet another example of institutionalised inflation and would add to consumer inflation. I note the IFS (Institute of Fiscal Studies) suggests another £7 billion of taxes are required so I think that you could easily be right! However the involvement of the IFS chief Paul Johnson in the recommendation for CPIH as an inflation measure lost him a lot of credibility in my eyes.

  3. Shaun, I can see reasons why Sterling has weakened recently (although too far in my opinion) but I fail to see why forex traders are so bullish on the Euro. A quick look at the economies of Finland, Portugal, Greece and Italy would provide many reasons for caution or outright pessimism. Even Germany is downgrading its growth prospects so why the optimism? If Sterling does fall further then it will be interesting to see if this will hurt Spain and Portugal as tourist spend falls. They are probably safe for this year as most holidays will have already been booked but longer term there may well be an effect.

  4. Sorry, posted before I was finished! Was going to say that the Euro’s trade weighted index is around 120 ( mentioned in your earlier blog) and Sterling is around the upper 80’s which suggests there is a large imbalance and yet forex markets ignore this. I wonder why?

    • Hi Pavlaki

      The current pain trade in the foreign exchange market seems to be to mark the Euro and especially the Yen higher. I am sure it is cold comfort to Mario Draghi than Governor Kuroda is even worse off but there you have it! Looking at the carry trade they should be

      As to your Euro trade weighted I am not sure which one you quoting but it is at 95.7 if we quote the ECB version. It was set in Q1 of 1999 so it has not gone far and strangely not that far in comparison to the £ trade weighted which is around 4% lower. It is more pronounced on the individual exchange rate which has gone from 1.40ish to 1.28ish….

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