-
Policy
Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM POLICY: -
EM Policy
EM Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM EM POLICY: -
G10 Markets
G10 Markets
Real-time insight on key fixed income and fx markets.
Launch MNI PodcastsFixed IncomeFI Markets AnalysisCentral Bank PreviewsFI PiFixed Income Technical AnalysisUS$ Credit Supply PipelineGilt Week AheadGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance CalendarsEZ/UK Bond Auction CalendarEZ/UK T-bill Auction CalendarUS Treasury Auction CalendarPolitical RiskMNI Political Risk AnalysisMNI Political Risk - US Daily BriefMNI Political Risk - The week AheadElection Previews -
Emerging Markets
Emerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
-
Commodities
-
Credit
Credit
Real time insight of credit markets
-
Data
-
Global Macro
Global Macro
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
Global MacroDM Central Bank PreviewsDM Central Bank ReviewsEM Central Bank PreviewsEM Central Bank ReviewsBalance Sheet AnalysisData AnalysisEurozone DataUK DataUS DataAPAC DataInflation InsightEmployment InsightGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance Calendars EZ/UK Bond Auction Calendar EZ/UK T-bill Auction Calendar US Treasury Auction Calendar Global Macro Weekly -
About Us
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.
Free AccessMNI INTERVIEW: Sterling To Fall Significantly Over Time -Weale
The UK’s historically large current account deficit is likely to prompt significant depreciation of the pound sterling over time, against the dollar and other currencies, former Bank of England Monetary Policy Committee member Martin Weale, told MNI.
With the current account deficit widening from 2% of GDP in 2021 to 7.2% of GDP in Q1 on the back of surging energy costs before dropping back to 5.5% in Q2, the currency will either hvae to weaken or the UK’s trade performance, a laggard in recent years, will need to improve significantly, Weale said in an interview.
"There are two ways it can work. One is to improve the current balance through trade. The other is to create a point where people think it [sterling] can only appreciate. Both of those would likely need fairly large adjustments," Weale said.
The current account deficit is generated by "people spending money that they haven't earned," and may have to be corrected by a fall in the real effective exchange rate -- the nominal rate adjusted by the ratio of UK prices compared to those abroad. With the dollar dominant in world trade, that would point to further sterling-dollar weakness.
"If the issue is depreciating until people in capital markets expect an appreciation, the Grand Old Duke of York strategy .., then perhaps the currency pairs in which sterling is most exchanged matter the most. So that would probably give greater weight to the dollar," Weale said. (See MNI INTERVIEW: Weaker Pound Still To Hit UK Inflation)
INVESTMENT INCOME TURNS NEGATIVE
For many years UK's current account was flattered by positive investment income but recent data show this has turned negative. The UK for a long time was able to get a better return on its foreign investments than it had to pay out on foreign investments here, but that seems to have been an anomaly.
"It was never terribly clear how it was possible in the first place. It was something that always looked too good to be true and so it turned out to be," Weale said. "Britain's external liabilities are bigger than its external assets. That is not a terribly surprising state of affairs to be in if you have been running an external deficit for a long time, which we have."
But, while data in recent years have shown UK exports not responding strongly to declines in sterling, Weale said that it may just be that larger declines are needed.
"Of course, at the moment, we still have the very strong headwinds of the aftermath of Brexit and that adds to the amount that any depreciation has to surmount," he added, noting that the UK’s recent political instability is also a headwind for exporters, who better thrive in more predictable environments.
Some analysts have warned against placing too much weight on balance of payments figures because they are highly volatile, but Weale, who is Chair of the National Statistician's Committee for Advice on Standards for Economic Statistics, believes volatility is intrinsic to the data set.
"It is simply in the nature of things. The current account balance is simply the difference between two large numbers and if you have relatively small errors in two large numbers, if they are independent they translate into a large error in the current account balance," he said.
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.