Sterling may need to weaken further, says BoE official

February 17, 2013 - 4:55:14 am

LONDON: Sterling may need to weaken further in order to rebalance Britain’s economy, senior Bank of England policymaker Martin Weale said yesterday, as finance ministers met in Moscow to discuss exchange rates.

Britain’s economy has been stagnant for the past two years and efforts to focus more on exports have had little effect, despite a 25 percent depreciation of the country’s currency between 2007 and 2008, Weale said.

“The ... perhaps most natural means of resolving the problem is for the nominal exchange rate to fall,” he said in the text of a speech to be delivered to an economics conference at the University of Warwick. The Bank of England has appeared supportive of sterling weakness before, but Weale’s comments come at a sensitive time.

The pound has fallen almost 5 percent since the start of the year. Finance ministers and central bankers from the G20 group of major economies are currently meeting in Moscow, where unfair currency competition is high on the agenda. Japan is facing particular scrutiny due to policies that have led to a 20 percent fall in the yen since November as it seeks to reflate its moribund economy.

Britain shares many of Japan’s problems, including extremely weak growth. Earlier this week BoE Governor Mervyn King defended stimulus policies that weakened a country’s currency as a side effect. 

Weale did not say Britain should actively pursue such a policy. But he did say the BoE should consider disregarding the inflation impact of future sterling weakness, just as it has recently with the pound’s fall since the start of 2013.

“I certainly see that there would be a strong case for treating the effects of any further depreciation similar to that experienced in the last few weeks in the same way,” he said. “But I should stress that this point is quite different from saying that I would be unconcerned about the effects of a sharp depreciation on prospects for inflation.” reuters