By Svenja O'Donnell
Bloomberg News
Thursday, April 12, 2012
http://www.bloomberg.com/news/2012-04-12/pound-strength-is-crippling-bri...
LONDON -- Britain's exchange rate is "crippling" the economic recovery, and devaluing the pound by as much as 25 percent could push growth back to an annual 4 percent, research group Civitas said.
The pound's "significant" drop since 2008 hasn't been enough to make U.K. exports competitive on world markets, and a future decline in the currency is inevitable, according to John Mills, the author of the Civitas report published in London today. A devaluation of as much as 15 percent would balance the U.K.'s trade deficit, he said.
"The exchange-rate policy we have pursued for decades has made it much more expensive to run most manufacturing operations here than in other parts of the world," Mills said. "Getting the exchange rate down is a matter on which, in the end, we will have no choice." Data yesterday showed the U.K. trade deficit widened to the most in three months in February as exports of cars and heavy machinery fell, especially to the U.S., China, and Russia. British manufacturing has become less competitive as some Asian countries devalued their currencies, boosting their competitiveness and hurting the U.K. economy, Mills said.
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