For more than six years now, the eyes of economic analysts and politicians have been on the interest rate level, held by the Bank of England at 0.5% since March 2009.
Month upon month, countless column inches have been devoted to postulations upon what a shift in that rate would mean, yet the record low rate has not budged since Labour were in power and has outlived the Coalition’s entire term of Government.
Likewise, inflation has been a talking point of choice for many commentators on the state of our economy, with many column inches of press now being dedicated to this measure and its recent dip into negative figures.
However, whilst the eyes of those who make their opinions heard through the media are firmly upon these two variables, the potential dangers of a fluctuating currency are rarely mentioned.
With the ongoing crisis surrounding the Greek economy, it receives a passing comment here and there, but still nothing that reflects its importance. Even if the current moment of crisis passes, there will inevitably be further trouble somewhere down the line and a nation leaving the euro is untested water that could prove hugely damaging to the currency.
The strength of sterling against the euro, US dollar and China’s renminbi is much more of a concern to businesses here in the North East, and across the UK, than its prominence in open economic discussion suggests. That is especially the case when you consider any shift in interest rates is likely to be little more than a quarter of one percent; hardly worth the ink used in more than 70 months of speculation.
In recent weeks, we have seen some measures place China’s economy above the US as the largest in the world and, in the last 12 months, we have seen a 12.05% rise in the pound against the euro, but falls of 8.32% and 8.28% against the Chinese Renminbi and the US Dollar, respectively, as of June 30.
If you’re a holidaymaker heading for continental Europe, this is great news. If you are a manufacturer, or a retailer relying upon goods from abroad, and let’s not fool ourselves into thinking we make actually make enough in the UK to not be concerned with foreign trade – the effect is enormous. The furniture market, for example, is in deflation.
We need to balance the feelgood factor of extra holiday cash, with the reality of the cost of living during the rest of the year.
Unless this quiet, but powerful threat, relating to the strength of sterling in relation to its biggest trading markets, is more openly and honestly discussed, the general public are facing important political and economic decisions without being fully informed.
Now that the General Election is behind us and we have a Conservative majority Government, details are emerging on the poll for an in-out referendum on Europe. If we vote ourselves out of Europe, we are essentially risking significantly devaluing the pound against the euro and further weakening our trading position with other key markets.
This is important for those who do business with other global markets, and for those who purchase goods from those companies. A wholesale change in our position in relation to Europe would not be good for Britain’s economy, or for the finances of individual citizens.
Suggestions that Nissan would relocate to the continent, for example, should not be taken lightly.
We currently have the best of both worlds; we are not constrained by membership of the single currency, but we are a partner in the European Union, with the trade benefits that brings.
Official figures for February, issued in April, showed the UK to be a net importer in its trade with the EU, to the tune of £7bn in that month.
For non-EU countries, this figure was £4bn. When we find ourselves as net importers to the tune of £11bn, the state of the pound is something about which we must surely all be more concerned and informed.
Jason Maguire is managing director of the CreateCity Group, which owns a number of retail parks across the North East and which incorporates Frank’s the Flooring Store.