The dangers of a falling pound

Article Abstract:

The strength of pound sterling is not the only reason for some United Kingdom goods being expensive in foreign markets, and UK prices rises may also be the cause. A strong pound forces companies to cut costs, and a weak pound may be bad for productivity, as appears to have happened in 1994. A strong pound also helps control inflation, and a drop in the pound's value means that interest rates are more likely to be raised. Exporters may delay cost-cutting if they forecast a drop in the value of the pound, and this may lead to a longer period when the pound is strong.

Exchange Rates, Pound (United Kingdom)

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Overheating

Article Abstract:

The UK economy could be affected by wage inflation as unemployment drops, according to Goldman Sachs. Retail price inflation has been subdued due to the strength of pound sterling. This is not likely to continue since the UK trade balance will deteriorate as demand rises and the pound will drop in value in relation to the German mark. UK interest rates are likely to be raised since there are political constraints on raising taxes, and share prices are likely to suffer.

Reports, Goldman Sachs and Co., Economic development, Inflation (Finance), Inflation (Economics)

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