Wednesday 13 December 2017

Sterling falls as Britain's trade deficit hits a 17-month low

Brendan Keenan

STERLING fell further against the euro and dollar after news that Britain's trade deficit in January was the biggest in 17 months, despite the competitive gains from the lower pound.

Britain's economy has shown a disappointing response to the weakness of the pound, said Kate Barker, a member of the Bank of England's rate-setting Monetary Policy Committtee.

Official data showed a gap between exports and imports of £8bn (€11bn), the widest since August last year. Trade declined sharply in January, with exports down 6.9pc and imports dropping 1.6pc.

On a three-month basis, which gives a more stable trend, UK exports rose 4.5pc but imports climbed faster, rising 5.1pc as weak sterling pushed up their prices.

Sterling has dropped around 25pc against its main trading partners in the past three years. Yesterday it slipped further, trading at 90.6p to the euro and buying less than $1.50.

Analysts said it was not helped by a survey showing UK house prices grew at a slower pace than expected last month.

Markets believe the Bank of England will maintain its half-per-cent interest rate, and perhaps resume money creation until there are signs of sustained economic growth.

Economists at Goldman Sachs Group said the weaker pound may, in the end, help the UK economy grow faster than the eurozone.

The euro is still trading about 10pc above its fair value against the dollar, said Erik Nielsen, the investment bank's chief European economist.

"People are very bearish on the UK, probably more than they should be," Mr Nielsen said.

"The euro is clearly in its biggest crisis since it started, so it's kind of strange that it's overvalued. We think the UK will outperform the eurozone in growth terms. We have a constructive forecast for sterling."

He believes sterling will rise to 84p to the euro over the next six months.

That would bring much needed relief to Irish exporters, and might reverse consumer price deflation.

Despite everything that has happened over the years, economists' calculations suggest that a fair value for sterling against the euro is still around parity to the old Irish pound, although currencies rarely reflect purchasing value.

Irish Independent

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