Better off out than in?
Yes says Ambrose Evans-Pritchard in his piece in the Telegraph today arguing that the UK economy might have been dealt a much tougher blow from the fallout from the credit crunch had we been locked into the single currency zone. I have been discussing this with my A2 students this morning. When external shocks occur, the key to stabilising prices, demand and output is to have a flexible supply-side, fiscal policy autonomy and control over monetary policy. The UK has all three to a reasonable degree and I cannot help thinking that the sliding sterling-euro exchange rate is key to all of this.
Ambrose writes: “As Neil Mellor from the Bank of New York Mellon points out, the pound has been perfectly hedged in this cycle. Sterling has fallen hard against the euro, giving a shot in the arm to British manufacturers (yes, they still exist, 13pc of GDP) who rely heavily on Europe’s markets: yet it remains overvalued against the dollar, softening the effect of oil, metal, and commodity inflation. The shock absorber is working. The Bank of England has already cut rates three times.”
It is interesting when you chat to city and industry economists that discussion of the possible entry of the UK into the Euro Zone is completely off the agenda, the prospect does not exist. The debate has moved on for good.
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