Sterling’s recent depreciation may already have begun to lift the level of exports,
including in manufactured goods, although in some cases exporters appear to
have used it to raise profits (by holding their prices constant) rather than sales.124
Around two-thirds of input costs are domestic in origin, meaning that they are
priced in pounds, while around one-third are imported components, meaning that
they are purchased at world prices. As a result, a 15 per cent reduction in the value
of sterling translates into a 5 per cent reduction in price on world markets. Given
the intensity of price competition for manufactured goods, this has the potential
to improve the UK’s competitiveness.
10% I think, no?
Dear Mr Worstall
” … although in some cases exporters appear to
have used it to raise profits (by holding their prices constant) rather than sales.124″
Constant in what currency? If sterling, will not their profit will be lower by the imported component of their products?
“The IPPR Commission on Economic Justice
Time for Change
A New Vision for the British Economy”
Why does that make me think of Venezuela?
DP
Yes, but I can see what they’ve done-they’ve applied the correction both ways (down for the onshore costs and up for the offshore costs) giving a factor of 0.95882352941176470588235294117647
or, rounded down, 95%
5% is the right number.
If something cost 300 before ( 200 UK + 100 foreign ) it now costs 285 ( 170 UK + 115 foreign ). 15/300 = 5%
Clovis is more precise.
Oh, for Pete’s sake!
The $ or € price will be comprised of non-UK costs (unchanged) and UK costs down 15% If UK costs are two-thirds of the total price goes down 10% in $ or €.
Bongo – you are increasing £ imports costs due to the change in £:€. In that case the sum is (200£+117.65€)x.85=270 and the reduction is 10%. The cost of €-denominated components do not change in € terms.
Apologias john77 – you can’t apply the devaluation in both directions. 10% is the right number as you say.
@ Bongo
Thanks. It’s easy to get misled by a sleight-of-hand like that, which is presumably why they did it.