Think tanks urges pound devaluation

Pound coinDevaluing the pound by a third will allow British manufacturing to compete in the world, a think tank argues.

Britain has gone from being the "workshop of the world" in the 19th century to a "middling power" with a steadily declining influence, according to a Civitas-published report.

And Civitas believes maintaining the strength of sterling over many years has "sucked demand out of the economy" as the UK buys more goods from abroad rather than the other way around. This, Civitas claims, causes high long-term unemployment and welfare dependency while driving up public and private debt as the UK has to borrow to finance its over-consumption.

In An Exchange Rate Target: Why we need one, entrepreneur and economist John Mills insists the only policy to remedy the UK's problems is by weakening the pound to make exports more competitive.

Mr Mills says the pound should be reduced to about 1.05 US dollars, or 0.80 euro. It is currently about 1.50 US dollars or 1.17 euro. He writes: "There are no solutions to our current problems other than increasing our competitiveness and paying our way in the world."

The report states the UK's current account deficit every year is estimated at £65 billion or 4% of GDP, while the last trade surplus was in 1982, according to Civitas.

Mr Mills states Britain's only way of reversing trade deficits is to sell more manufactured goods to the rest of the world.

He writes: "Services will never be able to fill the gap. The reason why we have an annual £100 billion deficit on manufactured goods is that it costs much more to manufacture almost anything here than in many other parts of the world, especially the Far East.

"Huge swathes of the world's manufacturing capacity have therefore migrated from the UK and other western countries to the Pacific Rim."

Mr Mills says the reason why manufacturing in the UK is so expensive compared to elsewhere is because the cost base in the UK is so high, with wages and salaries amounting to about 60% of total manufacturing costs.

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