BRITISH EXPORTS

British exports

British Exporters

Introduction

In the aftermath, of the financial crisis sterling fell by around 25s% against all currencies (rather less against the US dollar, rather more against the euro and Asian currencies). This compares with the 'successful' post-ERM devaluation of around 15%, which proved enough to stimulate strong growth in exports without producing undue upward pressure on inflation, which, on the CPI definition, did not rise above 3%.

Over the past thirty years, net trade has largely been a drag on UK economic growth, with rapid growth in home demand sucking in large amounts of imports, while exports have failed to keep pace. However, with the consumer and government sectors likely to be in retrenchment mode for several years, there is now a renewed focus on exports as a key source of growth for the UK economy.

The sterling debate

In a small open economy like the UK, the role of the exchange rate is twofold:

To allocate resources between the domestic and overseas sectors

As the principal transmission mechanism between global and domestic inflation

The exchange rate, being a relative price, is a key determinant of the profitability of UK exports (or, which is the same thing, import substitution). The lower the exchange rate, the more competitive UK exports are, and they allocate more resources to the trade sector. The fall in the pound since the onset of the financial crisis is a key part of the rebalancing process that is, in the Governor's words, both necessary and vital to the long-term health of the UK economy. At the same time, the exchange rate is the link between global and domestic inflation. Again ceteris paribus, the lower the exchange rate the more of any global price pressures will be transmitted through to prices here. The fall in the pound since the onset of the financial crisis has ensured that UK inflation is higher than the global average. The latter insight belies the argument that since most of inflation is being visited upon us by the global economy, in particular through record high commodity prices, there is nothing we can do about it. If there is more inflation in the global economy than we wish to import, then all we have to do is set monetary (and fiscal) policy to encourage the pound to appreciate (Bean, Jens, and Kalin 2002).

Resource Allocation

Individuals, businesses and government must choose which methods to use for allocate resources and different types of goods and services are available in an economy. The concept of resource allocation usually refers to the allocation of resources amongst its different alternative. Business all over the world has to make decisions regarding the concept of allocating their resources and the better decision they take the better will be the results for them. A short supply of resources is proportional to the drive of the demand of that resource. Selection of alternatives in the process of allocation of resources through the mechanism of the market is a reflection of the demands and preferences of ...