This week the ONS released the UK trade data for May. So much for rebalancing the economy towards export led growth. The seasonally adjusted deficit in goods was £8.5 billion in May compared to 7.6 billion in the prior month. For the second quarter as a whole, the deficit is likely to be £23.6 billion compared to £22.2 billion in the first quarter and £23.1 billion in the second quarter last year. The trade situation is not getting any better. This is a further blow to lovers of devaluation and the J curve everywhere. Florence Nightingale would say of hospitals, the first requirement is they should do the sick no harm. The same should be demanded of economists in relation to the economy.
If devaluation were a cure for the ills of the British Economy, the UK would be one of the strongest economies in the world. There appears to be some thought than a further round of depreciation is required to resolve the trade imbalance. Heaven forbid, it would be to push the infant deeper in a desire to induce a swimming motion.
Earlier this year, the agents of the Bank of England were despatched to the four quarters of the UK to understand why, despite the weakness of sterling, there had not been a resurgence of manufacturing, especially export led manufacturing to resolve the trade imbalance. No copper in Cornwall, no tires in Wolverhampton, no jabberwocks, jormungands nor J curves.
Several months ago I held a long week -end e-debate with David Smith about this very subject. DS was gradually (but not completely) losing faith that weaker sterling would induce a trade miracle. Still waiting for the J curve to effect, like a Saturday night drunk waiting for the last bus long after mid night. Sometimes waiting is better the alternative reality ie the inevitable walk. In relation to trade, the reality is the J curve belongs in the dustbin of economic thought along with the march of the makers, gapology and inflation theory.
There is no march of the makers, there is no export led growth, there will be no rebalancing of the economy unless more is done to stimulate banking, financial and professional services growth instead of driving service sector earners off shore. It is time to accept as far as a manufacturing resurgence is concerned, the last bus has long gone.
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|The Saturday Economist|
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