The dramatic fall in sterling is a cause for celebration – not depression

Sterling is now trading at well under $1.30 to the pound, the lowest it has been for 31 years. Is this a cause for gloom or celebration? Most people seem to be depressed by what is happening, but they ought to be rejoicing.

The UK’s exchange rate rose massively during the monetarist era in the 1980s, and again towards the end of the 1990s as we started selling off UK assets on a scale unmatched anywhere else in the world. Having been at $2.00 to the pound for most of the 2000s, it dropped to $1.50 between 2007 and 2009, and then drifted up again – until the Brexit vote. While all this was going on, economies in the Far East devalued their currencies, reducing their costs on world markets and leaving themselves with a massive competitive advantage.

Very few UK manufacturers involved in internationally tradable goods could survive in these circumstances – and they didn’t. As a result, the proportion of GDP coming from manufacturing in the UK fell from almost one third as late as 1970 to barely 10 per cent now. As profitability in light engineering collapsed, and growth in the economy slowed, investment as a percentage of GDP fell too. Whereas the world average physical investment as a percentage of national income is 26 per cent – and nearly 50 per cent in China – in the UK the ratio has fallen to a pitiful 13 per cent...

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