Sterling's weak boost to exports

Chris Dillow

Chris Dillow
Sterling's weak boost to exports

To what extent does the UK have a supply-side problem – falling productivity – and to what extent a demand problem? In theory, sterling’s fall – the trade-weighted index has dropped 3.6 per cent since early November – should help us find out. If our problem is merely weak demand, sterling’s fall should boost output by cutting the price of exports and import-substitutes, thus allowing UK firms to expand output. If, however, we have a supply-side problem, the fall will merely raise prices.

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