Sterling’s Battle to Recover

London Business School’s Adjunct Professor of Economics Dr. Linda Yueh has written for the Financial Times’ Opinion pages, observing that the "fortunes of the pound highlight the need to set out a robust plan for economic growth".

The author of The Great Economists says a forecasted recession has weighed down the value of the pound.

Yueh writes, “Sterling’s weakness is [a] reflection of the strong dollar and of the uncertain economic outlook. The former is beyond the control of British policymakers, but the latter is not. The fortunes of the pound highlight the need to set out a robust plan for economic growth”.

During times of uncertainty the dollar tends to strengthen as it is the world’s reserve currency, but Yueh argues that the weakness of sterling is not solely due to the strong dollar. Sterling has not recovered its pre-pandemic value. Furthermore, that period of slow recovery was punctuated by the uncertainty around Brexit, followed by Covid-19.

New data reveals that the economic effects of the pandemic were worse than originally estimated. “The Office for National Statistics has revised down UK gross domestic product for 2020 to a contraction of 11 per cent, the biggest fall in national output since 1709 and the worst among G7 countries,” writes Yueh.

What has also weighed down the pound is the forecasted lengthy recession. The Bank of England expects the economy to contract for 15 months from the last quarter of the year. “That is longer than the average recession and comparable to the protracted downturn that followed the 2008 crisis,” comments Yueh.