Sterling's strength should not derail the recovery

While this week’s GDP figures for the first quarter look set to confirm that the economic recovery has gained further momentum, one potential threat to the sustainability of the recovery is the strength of the pound. Its trade-weighted value reached its highest level since October 2008 last week.

But the pound’s strength should not derail the recovery. Not only might the currency weaken again this year but there is scope for exporters to absorb some of the appreciation in their margins. Meanwhile, there are offsetting beneficial effects on households’ spending power.