A weak pound might not help the UK's flagging exports

As the pound loses strength today, some commentators are talking about the silver-lining for exports. This analysis is likely too optimistic.

Firstly, the days of a large manufacturing sector in the UK economy are unlikely to return. Wage competition from less developed countries means that firms simply can not compete in labour-intensive industries. What the country now has to offer is quality. We see this in the areas in which exports have been strongest: highly-skilled service industries. Our competitive advantage is expertise, and as world-leaders that talent is not particularly price sensitive. Scandals such as Libor fixing have reduced the trust in these industries, and a currency depreciation is unlikely to undo that damage.

While the UK's exports aren't particularly price sensitive, its imports are. A weaker pound will likely translate into inflation, and tighten household purse strings further. Those who embrace weaker sterling may forget the pressure this will put on already squeezed living standards.