Sterling (GBP) remains under pressure as the EU/UK trade talks stall. Sterling has been under pressure since the beginning of the year and is down to an eight-year low against the US Dollar. Sterling also continues to be under pressure in the commodity markets.
The fall in Sterling against the US Dollar has caused a number of economic problems for the UK, namely an increased level of unemployment. This has led to questions of what the Government’s trade policy is going to be to address this issue. A recent analysis by the Economic and Social Research Council (ESRC) concluded that the UK needs a new export strategy if it is to continue to make the most of its economy. Whilst Sterling has declined against other major currencies, this does not reflect the UK economy as a whole.
The ESRC concluded that Sterling is falling against major currencies because of a number of factors. The most important of these is the fall in global demand. The UK has had its own economic difficulties in the last six months and this has been reflected in a decline in the level of exports and imports.
In order to prevent a further fall in the value of Sterling against the Dollar, the Government should develop a stronger strategy to increase exports of goods and services. If this is not done then this will have serious implications on the level of GDP growth. However, a weak Sterling will not prevent the UK from being able to trade with the rest of the world.
The Government has a number of policies in place that it can implement to increase the value of Sterling against the US Dollar. These include: cutting corporation tax, reducing the size of the state-owned bank and reducing the budget deficit. Whilst cutting corporation tax may be a good idea, it is not always possible.
Cutting corporation tax will mean businesses in the UK having more money to invest in their businesses. But reducing the size of the state-owned bank is likely to have a negative impact on the country’s ability to attract new businesses and fund capital growth. Cutting the budget deficit is also likely to have some effect on the level of UK growth, but there are very few options open to the government if it wishes to cut the budget deficit too much.
The government should also continue to push for improved trade deals with other countries such as the European Union (EU). The current EU/US trade deal is not yet effective, and the UK needs an improved trade agreement if it wants to maintain its competitive edge over its trading partners. The UK economy is now facing a severe challenge in terms of competitiveness and it needs to look at other opportunities to increase exports. It also needs to consider its policy towards its domestic market.
As Sterling continues to fall against the US Dollar, there is a risk that more investment will be directed to the lower valued Sterling, which may be counteracted by higher investment in other countries. The UK Government must do everything possible to help the economy to cope with this situation.
A weak Sterling may also make it harder for the Government to meet its commitments to its own citizens who reside in the UK. This has also led to an increase in applications to leave the country in search of better economic opportunities outside the UK.
The most sensible course of action for the Government is to ensure that there is no further depreciation of Sterling against the US Dollar and to make a concerted effort to increase the level of exports. This can only happen if the Government develops a strong strategy and ensures that all of its policies are implemented.
It is likely that the Government will continue to face an uphill struggle in the years ahead in the attempt to boost the level of the UK’s economy but if it adopts the correct economic policy it is possible to maintain competitiveness and prosperity at all times. All that is required is a strong and determined government.