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Is a weak pound really so bad for the UK economy?

As the UK currency comes under further pressure on international money markets, with many experts expecting further pressure in the short to medium term, many are asking if a weak pound is really so bad for the UK economy?

The weakness in the pound is something of a double-edged sword and has a number of advantages and disadvantages with regards to UK economic activity. On the one hand a weaker pound will make UK services and UK products more attractive to those from overseas but on the other hand it will make imports more expensive which could ultimately feed the monster which is inflation. However, at this moment in time there is no doubt that increased economic activity is more important than short-term price inflation although there needs to be something of a balance regarding these two issues once the economy is back on its feet.

As we have discussed in a number of recent articles, this is a very fine balancing act which the UK government will have to negotiate in the short to medium term. There is also great concern with the UK budget deficit which is set to remain relatively high for the next few years at least, with the UK government unwilling or unable to put forward a credible plan of attack in the short term. We may see more detail regarding Gordon Brown and Alistair Darling's plans for the budget deficit in the forthcoming budget but analysts and economists are not holding their breath!

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