Tuesday 26 October 2010

Media cheer "unexpectedly strong growth in the 3rd quarter"

The media are all over the unexpectedly-good Q3 UK GDP growth story, hailing the boost to the value of Sterling on foreign exchange markets, against the Dollar and Euro.

However, the last thing our government wants is a stronger Pound. No, they are pinning their hopes on a private sector export-led recovery, like every other country. Improving exports is diametrically opposed to having a stronger currency -- that's only a good thing when you want to IMPORT more stuff, as in the previous decade (and look where that has taken us...). Ask China, Japan, Germany, Brazil, or any other country whose economy is export-driven, they will tell you that a strengthening currency strangles their economies. That is why the talk is of competitive currency wars lately; everyone wants to have a weaker currency, so they can sell stuff to everybody else.

So... what's going to give? Will we have nominal economic growth going forward, or will we have a strong Pound going forward. It's pretty unlikely we'll have both.

On the bright side, it's a positive to see the UK's credit rating upgraded to AAA with a stable outlook, from AAA with a negative outlook.

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