DEBATE: ­­Should we be concerned about sterling reaching parity with the euro?

A one euro coin (Foreground) is pictured
Source: Getty

DEBATE: ­­Should we be concerned about sterling reaching parity with the euro?

YES – Vicky Pryce, board of CEBR and a former joint head of the Government Economic Service

It is true that a lower pound has improved the competitiveness of British exports, partly offsetting the fall in productivity we have been experiencing. But it has done little for overall manufacturing output, which has struggled since the referendum vote and in fact fell in the second quarter of 2017. And the current account deficit has, if anything, been widening. With some 53 per cent of UK imports coming from the EU, the cost to manufacturers and consumers is rising. Figures just released indicate that household spending is slowing down sharply, reflecting the inflationary impact of the low exchange rate. As we are rapidly slipping to the bottom of the league of comparable industrial nations, the pound’s weakness against the euro is one of the clearest signs of the markets having downgraded the UK’s likely economic prospects outside the EU, and having upgraded those of the Eurozone which is currently growing at the fastest rate in six years .

NO – Dr Savvas P Savouri, chief economist and partner at Toscafund Asset Management

As the pound slips ever more against the euro, there are those claiming it will deliver more economic problems than benefits. The most commonly aired concern is that each move lower will prompt the Bank of England to “act” in support of it, most obviously by lifting the base rate; doing so at a time when the UK economy actually needs this policy to remain relaxed. I see no such reaction as likely. After all, the statuted role of the Bank’s Monetary Policy Committee is to manage consumer price inflation within the range of one to three per cent. As such the most recent few months of monitored inflation have come in 2.6 per cent, down from the 2.9 per cent recorded in May. As for the argument that the pound’s slide will act to accelerate inflation anew, I see no such transmission, and so no need for the MPC to move from its current interest rate stance. The simple truth is that whilst a weakening in the pound is proving costly to those of us who have needed to buy euros, in more general terms it is not proving costly to the UK economy, but instead to those nations on the receiving end of the euro’s strength.

Read more: Why lament sterling reaching euro parity? I say bring it on

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