The UK economy seems to be experiencing what can be described as ‘robust’ growth compared to what is happening in the Eurozone. Annualised growth for the second quarter of this year was over 3%, inflation is not far from the Bank of England target of 2%, unemployment has fallen to just over the 6% level and talk has moved to when UK interest rates will be increased. This has seen sterling strengthen significantly over a period of nine months, to the end of June 2014.
The problem, though, is that sterling strength increases the cost of our exports which, given our largest export market is the long-suffering Eurozone, has a perceived negative impact on our price competiveness.
Two points to note are that the euro/sterling rate is still well below the rate pre-financial crisis, and that Germany was able to expand its exports for many decades despite Deutschemark appreciation. The key to their success was a highly efficient state support structure for exporting, as well as their ability to add value to what they were selling, therefore allowing them to price in a way that avoided or minimised price comparison. This is difficult but critical nearer to home, if we want to keep growing exports in a climate where most believe that sterling will continue to appreciate against the euro.
Charles Purdy, CEO of Smart Currency Business, www.smartcurrencybusiness.com