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Devalue the pound to boost UK economy?

Tuesday, March 25, 2014 - 02:31

Mar 25 - A campaign is launched in the UK to try and persuade the government to allow the pound to devalue, saying it would help boost growth and investment. Joanna Partridge looks at the costs of having a strong currency - a problem not confined to Britain.

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A call to arms - to devalue the pound. It's not the usual cry from businesses. But John Mills, economist and founder of consumer products brand JML, believes sterling's too strong, and is hurting the economy. He's just launched The £ Campaign. SOUNDBITE: John Mills, Chair of The £ Campaign, saying (English): "All the evidence shows if you do that you then get a huge surge of output as you bring together both new investment in manufacturing and bring reductions in unemployment." He's planning to lobby politicians. He believes a weaker currency would help GDP growth reach levels of 5% a year - and says the alternative is decades of stagnation. John Mills made his millions from a business he set up in his basement in the 1980s. But most of the products he sells are made in the Far East. He believes Britain could also look to Asia - for advice. Japan has devalued the yen by around 30% over the past year. And China has also kept its yuan artificially low. SOUNDBITE: John Mills, Chair of The £ Campaign, saying (English): "The reason why the Chinese economy is growing as fast as it is, is because of the very high levels of investment in light industry, where the returns are highest, and the migration of large numbers of people from very low productivity agriculture to the industrial part of the economy." PTC The campaigners would like to see the pound at the $1.10 level, rather than the current $1.65. They say that would help manufacturing rise to 15% of output from 10% - and so improve the trade deficit. But with Britain currently enjoying faster growth than many other developed economies, they may not find the government that receptive. Holding down the pound might be easier said than done, says Jane Foley from Rabobank. SOUNDBITE: Jane Foley, Senior Currency Strategist, Rabobank, saying (English): "You have a central bank, the Bank of England, which has of course an inflation mandate, not a currency mandate, it can't do both. Now if you look at what the central bank is doing, its rhetoric remains very dovish, now in theory that should be negative for the pound. If rates in the UK do go up in the second quarter of next year, the Bank of England's going to be one of the first developed world central banks to hike rates this cycle, and that means that sterling is likely to remain pretty well supported." UK inflation fell to a four-year low in February, to 1.7%. That is expected to reduce pressure on the Bank of England to raise rates in the near future. A strong pound has always been a source of British pride. If these campaigners get their way they'll change that - meaning Britain could lead the currencies of the world's developed economies down - not up.

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Devalue the pound to boost UK economy?

Tuesday, March 25, 2014 - 02:31