The recent rise in the pound against the dollar to almost $1.40, its highest level since the eve of the EU referendum, raises some concerns that a valuable source of support to economic growth – namely the boost from net trade – could soon be snuffed out. However, there are several reasons to remain optimistic about the prospects for net trade.
For a start, the pound has essentially moved sideways on a trade-weighted basis, with a rise in the dollar partly offset by a fall against the euro. We doubt that the pound’s current strength against the dollar will be sustained either. Second, survey measures of export orders remain robust, and point to a pick-up in export growth. Third, the net trade boost so far has been mainly driven by services, which are less import-intensive, and less price sensitive. And finally, we think that global growth will remain robust this year.
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