ECONOMY…By Alex Porter
The plunging pound is threatening the survival of businesses in the Scottish imports sector.
Yesterday the Bank of England (BoE) governer Mervyn King indicated that the bank would increase quantative easing (QE). QE, or money printing, has caused the value of the British pound (GBP) to fall rapidly against other currencies.
In the last 3 years for example sterling has fallen against the Japanese Yen by 61%. This means buying products from overseas has become much more expensive for Scottish importers who have to pass on those costs to consumers or go under.
Since the financial crisis began the Bank of England has created new money to the tune of £200 Billion. With more pounds in the system the value of each one falls and so you have currency devaluation.
Newsnet Scotland interviewed one Scottish importer who complained that the fall in the pound was driving up costs:
“In the last two years we have had a constant barrage of letters from suppliers informing us that the costs of their goods have risen, in some cases by over 25% per year, due to the weakness of the British Pound against the Euro, Dollar etc.”
The Westminster policy of currency devaluation is causing this importer to rethink the value of remaining within the UK currency:
“Many of our imported goods come from France, Italy, China and America. Goods that we sold in 2007/8 for £20 are now having to be sold for £30 plus. If ever there was a time to be in the Euro, the last two years were it. Because of these unaffordable rises many small businesses have gone to the wall.”
As Britain faces a rapid decline in its tax-base so Westminster deficits are accelerating. The coalition governments hopes that by increasing the money supply consumer demand will increase and taxes will rise as the economy grows. The problem with that analysis is that credit is frozen because of debt saturation and so lending more money to stimulate actually has the opposite effect.
As Scotland moves closer to the Holyrood elections, Labour will have to defend the case for staying within the union and dealing with a crisis in UK public finances and a plunging British currency. The SNP will offer to relieve Scottish business of those burdens and map out a transition to an independent Scottish economy boosted by North Sea oil revenues.
The news this week that the Norwegian oil fund reached $513 Billion , the equivalent of 10 years of Scottish public spending, will be exploited by nationalist strategists when seeking to establish their economic credibility with Scottish business leaders.