Newspaper-land has turned its attention to the cheap pound.
Yesterday and today, a string of articles looked at the cheap pound and gave us the benefit of their authors’ ponderings.
Here is a summary of what they say, plus a few penn’orth of thought of our own.
The Telegraph’s Liam Halligan is not known for his cheerfulness, At least not in his writing. He is one of the big critics of quantitative easing. He is not a fan of government debt, either, and now his list of woes has become a trio. Yesterday, the cheap pound fell victim to his ire.
A weak pound is no substitute for making tough decisions on debt, came the headline from his piece: Mr Halligan said: “Another generation of financially illiterate politicians has been seduced by the false charms of currency debasement and inflating away sovereign debt. Ambitious economists are lining up to justify such folly – issuing footnote-heavy missives arguing for “competitive sterling” and “an end to this low-inflation cult”.
“Such advice is woefully misguided – a carbon-copy of policy blunders made throughout history, most recently in the 1970s. The UK government, over many years, for the next decade in fact, needs severely to curtail its spending. The most vital services must be protected but the state must do much less and do it better. There really is no alternative, to coin a phrase. The “easy option” of tackling our debts via a lower pound and higher prices is ultimately not only counter-productive, but deeply destructive. It will succeed only in precipitating the gilts strike we’re supposed to be trying to avoid.”
And yet, writing in The Times, Anatole Kaletsky headlined: “Rejoice – the pound is down again.”
Mr K focused his attention on the economy of the rising sun, and setting government finances. He said: “That, in fact, was precisely the reaction in Japan to last week’s slide in sterling. Visiting one of the country’s top economic officials with a small group of British journalists the day after sterling fell below $1.50, this is how we were greeted: ‘Ah, you are from Britain. Congratulations. You must be very happy about what is happening to the pound.’ That this comment was not an ironic joke became very clear a few hours later when we spoke to the chairman of Komatsu about the prospects for his company’s business in Britain’:
“ ‘A few years ago,’ he remarked, ‘I kept asking the British Ambassador when will Britain join the euro. But today I am very glad with hindsight that you didn’t do it.’ ”
Also in The Times, Bill Emmott: predicted a rise in sterling and a fall in the euro. He said: “Germany is probably the only country that would actually be praised by investors if it were to quit the euro, for its monetary and fiscal policies would be expected to be even more orthodox and anti-inflationary outside than in. That, combined with strong public sentiment against bailing out undisciplined free-riders in southern Europe, makes an insistence on strict adherence to the rules of the euro’s founding Maastricht Treaty eminently sensible, even praiseworthy. But it does have consequences. Unless Germany and other northern European economies pull off a surprisingly strong rebound in their own consumption and corporate investment, dragging up the rest of the eurozone with them, the outcome is likely to be a pretty dismal few years for overall euro-area growth. Compared with that, even the British recovery, and adjustment process, is likely to look stronger.”
And in the Guardian, Larry Elliott said: “Weaker sterling may mean dearer imports but it will help rebalance the economy.”
Mr Elliott’s views are pretty much in keeping with sentiments expressed here often enough. He said: “Only in Britain would it have been possible for a fall in output of almost 5 per cent in 2009 to have been accompanied by a 10 per cent jump in house prices. Only in Britain would it have been seen as a cause for celebration.”
Liam Halligan’s constant bleating about the dangers of inflation are getting tedious.
The truth is, the story of sterling devaluations is mixed. Back in the 1930s, the departure from the gold standard and the devaluation this entailed was a triumph for the UK. The exit from ERM in 1992 was perhaps the key building block to the economic recovery that followed.
But the 1967 devaluation was largely ineffective. The pound in our pockets was hit hard, inflation rose, cancelling out the benefit to exporters of a cheap sterling, and making imports seem cheap again.
But now is not like 1967. Back then, any hint of inflation was met by demands for wage increases – and we saw the plight of industrial relations and the emergence of what became known as the British Disease – and industrial unrest. It is patently not like that now. Wage inflation is modest – in fact, a recent survey from YouGov found that no less than half of workers accepted zero pay increases in 2009.
Of course there are dangers that the cheap pound will lead to inflation, like it did in 1967. But, for a decade or longer, the UK has suffered from the straitjacket of a currency that is far too expensive.
China’s export-led boom has been directed by the cheap yuan. Few would dispute this. The global economy is haunted by the problem of imbalances, with some countries exporting too much and others importing too much. Few would dispute this. The fall in the pound is a part of the essential adjustment. It is not enough on its own, the dollar needs to fall too. But it seems highly unlikely that the UK can ever enjoy a sustainable recovery without seeing a cheap pound.