A rise in the value of the pound might stifle the increase in exports of British goods that has been spurred in part by the weakening of the currency, Trade Minister Stephen Green said.
“This would not be a moment when you would want the pound to appreciate,” Green said in a Bloomberg Television interview in Washington today. Sterling’s decline is “of help to the rebalancing of the economy and you are now seeing the impact of that coming through in the form of quite strong export performance.”
British exports in December rose to a record 24.2 billion pounds ($39.3 billion), according to the Office for National Statistics in London. Ernst & Young’s Item Club said in a report this month that U.K. goods exports will probably increase 8.7 percent a year through 2020, compared with a 3 percent annual gain in the three years through 2010.
Sterling has dropped about 24 percent since the start of 2007 on a trade-weighted basis. It advanced 1.4 percent against the dollar this month amid mounting pressure on the Bank of England to raise its key interest rate from a record low 0.5 percent to curb above-target inflation.
Central-bank policy maker Andrew Sentance said earlier this month the bank should raise interest rates to boost the pound and help it to contain inflation pressures. Inflation accelerated to 4 percent in January, twice the bank’s target.
The U.K. economy contracted 0.6 percent in the fourth quarter, complicating the bank’s task as a split deepens among policy makers on whether to withdraw stimulus.
Green, a former chairman of HSBC Holdings Plc, said that the bank’s mandate is to look at inflation, not currency levels.
“It’s important to be competitive,” he said when asked whether the British economy could cope with a sterling appreciation. At the same time, “competition is the result of a mix of factors, where the exchange rate is one of the factors only.”
Green said government steps to narrow the budget deficit will “pay dividends” over the next few years as the country seeks new engines of growth.
“The British economy had an unbalanced profile to it in the run up to the crisis,” Green said. “We have to find a growth model that is more sustainable and clearly going forward it is not going to come from consumption fueled by debt and it’s not going to come from growing government spending.”
One way to spur more trade would be to complete the long-stalled Doha round of talks on a new global trade agreement within the World Trade Organization, which was launched in 2001. Green, who is meeting with U.S. Trade Representative Ron Kirk and a White House adviser, Michael Froman during his visit to Washington, said 2011 provides a “window” to complete the deal.
Reaching the agreement could boost global economic output by $170 billion, including more than $30 billion for the U.S., he said.
“It’s in our collective interest to get it done,” Green said.