A sterling job

With the recent smattering of seemingly contradictory news on the economy, some things to bear in mind here:

Q3 growth from at 0.5% is not notable for being either good or bad, but:

1. It represents a slowdown from 0.7% in the previous quarter,
2. Some industries, including manufacturing and construction, are actually contracting
3. Theresa May’s pursuit of a hard brexit wasn’t evident until October, so there should be a sharper slowdown in the next set of figures.

The weaker pound is good, but not because the “pound was overvalued”. If the pound was overvalued then it is still overvalued, because the only devaluations it’s had are from brexit events, not from whatever undefined property is supposed to have been keeping it artificially inflated in the minds of people claiming it was overvalued. This is an irrational sentiment repeated by nervous brexiters who don’t think about what they’re saying.

It’s good because it acts as stimulation on foreign investment. But it’s bad because it means everyone is poorer (including businesses – which may be important) and it acts as a brake on foreign labour, with unpredictable effects. We don’t know the answers to the following:

1. How much will net migration fall as a result of the UK being 20% less economically attractive?
2. Will we have our own brain drain?
3. How much will this decrease productivity?
4. Will a sudden contraction in net migration push up salaries?
5. If salaries are pushed up quickly without corresponding increases in productivity, will those jobs still be viable?

The last point is interesting because there has been speculation that the reason the UK’s unemployment figures remained low in the aftermath of the financial crash was that we swapped high unemployment for low wages. We end up at the same argument that right wingers use to oppose minimum wage increases – if minimum wage goes too high then the jobs will simply disappear because it’ll no longer make sense to employ people in them. It’s a logical argument, but one that has never yet been true in real life. However, at some point it will be, and a weaker currency means businesses will have to be more productive to justify the same wages, but British businesses up until now have shown little ability to increase productivity.

So the weaker pound is a bit like low interest rates in the sense that it cushions us from some of the shock, but it comes with some undesirable and major side effects which may become problems in their own right.

The most noticeable one in the last few days, of course, is Apple’s pricing. A lot of people are pointing out that Apple’s prices have increased in other countries too, so it can’t be because of brexit. Those people are wrong; the pre-tax price in the UK is almost exactly the same as the pre-tax price in the US, so the price change has factored in the weaker pound. If you think Apple’s new lineup has moved from merely expensive to eye-wateringly expensive, then get used to it because this is what a weaker currency means.

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