Thin rays of hope on UK economy?
There are no fiscal weapons either, because the present boost is at the limits of the acceptable, maybe above it. Were the Government to try to borrow yet more, the very fabric of our public finances would be on the line. Technically the country would not default on its debts. Because our debts are mainly in sterling and we control our own currency, we can always print the money to pay back. It is much more likely that defaults will come in the eurozone, with Greece as the most obvious candidate, though my instinct is that this is still the best part of a decade away. Nevertheless, the fall in sterling is already far worse than in 1992, and for foreign holders of UK government debt this is something akin to a default already.
On the other hand, there are signs that the fall in the pound is starting to have some impact on demand. The economy has been tilting towards exports. This comes from HSBC, and the report associated with it comments that the fall in the pound is no panacea, which of course is right. But the fact that the rebalancing of the economy is already under way, so soon after the devaluation, is quite encouraging. Providing it does not fall too much further – or better, come back up a bit – this is helpful.