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What the fall of the Sterling really means
A weaker currency would in normal circumstances mean a boost to exports and an improvement of the trade balance, but in this case rising imports have canceled out the effect.

To what extent do normal circumstances apply anymore? I mean, isn´t there an assumption that what is exported are goods or raw materials made in the exporting country?

I don't know how much of the export looks like that anymore, and there are at least two more cathegories to consider: world-wide production chains and services.

With world-wide production chains I mean the proverbial fish stick that can take a lap around the world before ending on the consumers plate. While currency exchange rates changes costs - here decreasing the cost of UK labour - I don't know how much effect that has in the short term. It all depends on how the production chains are structured. Also access to the next step in the chain is crucial and Brexit is putting that in jeopardy.

And then services, in particular financial services. In general financial services doesn't appear to be very cost sensitive considering the salaries in the sector. Access to markets and financial tricks (legal or otherwise) is probably more important for the bottom line. Also as with other high-end services there is probably an element of considering expensive services to be better - why else would they cost so much? - which would mean that as currency goes down, so does the status of UK fiancial services.

Again, I don't know how large portions these are of UK exports, but I think it should be part of the explanation.

A tangential question is to what extent normal conditions apply to any economy today.

by fjallstrom on Tue Aug 22nd, 2017 at 01:50:21 PM EST

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