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The perils of Sterling's devaluation

 The Independent's Jeremy Warner has published two articles on Sterling recently and wonders why there has been so little public attention given to this.  He wonders if this is because the public's immediate reaction is that devaluations are probably beneficial overall.  However there are some significant disadvantages and Jeremy Warner argues that these may both outweigh the advantages and also kick in immediately while any benefits (exactly what exports are going to benefit?) will only show later on.

Full article 1 Jan 2009: Perils of Sterling's Devaluation
Full article 12 Nov 2008:  Sterling crisis threatens Brown's reflationary plans

 ....... Government ministers lambast the banks for not lending enough, yet the reason credit is being squeezed is because it is no longer possible to borrow internationally as freely as we used to. In extremis, the flight of capital becomes a self-feeding phenomenon. The lower the pound falls, the more it frightens the money markets and the less inclined they are to lend in sterling.

Many international investors regard the outlook for the UK economy as truly dire. Its key strengths, the housing market and financial services, lie in ruins, and now there isn't even the attraction of high interest rates relative to Europe to keep the money flowing in. Like the banks, Britain as a country is being forced to deleverage, and most disagreeable it is likely to prove too........

Jeremy Warner The Independent 1 Jan 2009

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