Between January 2007 and January 2009 the sterling effective exchange rate fell by more than a quarter. In theory this is good for exporters, but not for those relying on the imports of intermediate goods and components. As we started to see the green shoots of recovery in the world economy at the end of 2009, manufacturers reported concerns about the potential impact of excessive exchange rate volatility on their ability to secure growth. A quarter of companies were reported to be very concerned about exchange rate volatility, rising to a third of large manufacturers. There were also some big differences in views across different manufacturing sectors, with rubber, plastics, chemicals and transport sectors registering the highest levels of concern.
In addition to the demand outlook, large movements in exchange rates could have a bearing on the contribution that net trade will make to growth. Forecasting exchange rate movements is highly uncertain. There is wide variation in views on the direction of sterling over the next 18 months. The table below outlines our central view on how the pound will fare against the euro and the US dollar this year and next.
This article is taken from EEF’s ‘Export Insights’ October 2012 publication