One of the the things that everyone knows about economics is that a weak pound is bad for us when we take our holidays but is actually good for companies that export to the rest of the world. The weak Sterling means that UK companies get more £££s in their bank when the stuff they have sold in other countries is converted back into home currency.
We have had a staggeringly weak pound for the entirety of this recession – this is the Pound vs the Euro since 2007.
Strangely, data from the Office for National Statistics (ONS) showed a UK trade deficit of £7.99bn in January (£7.01bn in December 2009). More here. This is about £1bn more than economists had predicted and was down to a drop in exports of £1.4 billion (to £19.5 billion) and a decline in imports of £0.5 billion (to £27.4 billion). This is the biggest monthly deficit since August 2008 – pre Lehman Brothers.
“Economists were expecting the deficit to shrink to £6.9 billion in January, according to a Dow Jones Newswires survey last week.” Wall Street Journal
Some ‘expert’ economic analysis:
“The Office for National Statistics (ONS) said there was no obvious reason for the wider trade deficit, although some have suggested that the particularly bad weather in January may have disrupted trade flows.” Sky News.
“It could be that the weakening of sterling is taking time to feed through – but that may be painting too much of a positive on a negative set of numbers.” Jeremy Stretch, senior market strategist, Rabobank
“It’s a pretty disappointing number,” Alan Clarke, analyst, BNP Paribas.
“There is no getting away from the fact that the January trade deficit is disappointing and also worrying for hopes that the economy can rebalance over the coming months. The total trade deficit widened to a 17-month high in January as exports fell appreciably and imports declined modestly. This suggests that net trade is set to be a drag on the economy in the first quarter of 2010 as it was in both the fourth and third quarters of 2009.” Howard Archer, chief UK economist, IHS Global Insight
Am I the only person that worries that the clever people who are called in to advise on the management of our financial system don’t even seem able to get close to explaining some of the most elementary numbers that are the constituent parts of the economy?
@stepdown: @MarkLittlewood Ceteris paribus! Germany just announced that exports fell unexpectedly in January as well, exchange rates aren’t everything!
a) counter question from an economist: Can all the clever natural scientists explain what goes on in a cell or even a body?
b) Germany is not focusing on selling stuff in January, the first week they are on holiday, the next two weeks they have to the annual financial reporting (end of year), so there is only one week left to do business – but that’s my interpretation
c) Germany exports mainly to countries within the euro-zone therefore it is not a good example to analyse the influence of exchange rates