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Opinion

The cheap pound

The cheap pound
February 23, 2017
The cheap pound

To see why, let's consider the real $/£ exchange rate. This is the ordinary nominal rate multiplied by the ratio of UK to US prices. The real exchange rate can fall either if the nominal rate falls or if UK prices fall relative to US ones: both imply an improvement in the competitiveness of UK-based companies.

Right now, this real rate is at its lowest level since 1988, when current data on the UK consumer prices index begins.

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