If the Government were hoping for some good news to help their election chances yesterday was another severe setback for them. The latest UK balance of payments data (see Article 21, page 153 of Reading and understanding Economics for more info) was truly shocking. The figures showed that exports fell by 7% in January. This was much worse than analysts had expected. The result was a further sharp fall in sterling on the FX markets with the pound slipping back below $1.50.
The really disturbing aspect of these numbers is that you might expect to see the sustained fall in the pound boosting UK exports and inhibiting the level of imports coming into the economy. The depreciation in the currency pushes up the cost of imports and makes UK exports cheaper on World markets. While the higher price of imports does seem to be increasing domestic inflation the more favourable rise in exports does not seem to be coming through. There had been a hope that the improved competitiveness of the UK's manufacturing sector would help to rebalance the economy with exports and investment compensating for weaker consumption and government spending. Sadly the latest data suggests that this is not happening. The next concern for the Government will be the latest GDP data released on the 23 April 2010. This might show that the UK is back in recession which will hardly be good news just a month or so ahead of the election.
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The government of the last 13 years have shown encouraging results for education amongst 16-24 year olds. This government were the pioneers of the national minimum wage, moreover this government were responsible for the good economy we had prior to the recession, and the economy will bounce back. The currency determines imports and exports in terms of levels, however the main concern that any average person has is that when they go on holiday, the pound will buy a lot less. This will be good, as we will see more people travelling to the UK, and buying our goods and services. Another worrying issue is that London is in joint position with New York as the leading financial centre in the world. Therefore financial workers are more likely to go to New York, as they have caught up. Nevertheless, I believe the financial outlook for the UK will improve.
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