All pain and no gain as sterling's weakness fails to boost exports

[CHIMO]

A fall in the value of the pound pushes up the cost of imports but was supposed to boost UK exports by making them cheaper on world markets.

The weakness of sterling is certainly affecting the cost of living but – as today's trade figures demonstrate – is having scant impact on Britain's ability to pay its way in the world. The much-yearned-for rebalancing of the economy in favour of manufacturing and exports is simply not happening.

The kindest explanation for the increase in the deficit in January is that the bad weather prevented British goods from getting to their overseas destinations. This is not especially convincing; blizzards in January cannot explain why exports in the latest quarter (November 2009 to January 2010) were 3% down on the same period a year earlier, when the global economic downturn was at its most virulent.

Another argument is that it will take time for the effects of a cheaper pound to show up. Economists talk about the J-curve effect of a depreciation, whereby the balance of trade deteriorates before improving, because the cost of imports rises immediately but it takes time for exporters to respond.

http://www.guardian.co.uk/business/2010/mar/09/analysis-sterling-weakness-fails-exports