In this week’s podcast Guy Foster, Head of Research talks to Roger Bootle, founder of Capital Economics and author of recently released: The Trouble with Europe.  The podcast was recorded at our Edinburgh investment conference and kicks off by discussing last week’s underwhelming US and UK GDP figures.

Roger shares our concerns that the UK’s current account deficit, which currently stands at about 5.5% of real GDP, shows the real fragility of the UK economy. Roger maintains the way to reduce the current account deficit would be a rise in consumption which could come about as real incomes grow. However, without a revival in the eurozone or a weaker pound it seems unlikely that there will be a significant reduction.

We then explore the UK’s exchange rate policy and whether or not this needs to change to improve the economic situation. Roger, an advocator of a managed exchange rate, explains that a stable weaker pound would instil the confidence needed by many manufacturers to increase production and thus lower the current account deficit. Meanwhile, there isn’t much likely to cause the pound to fall a long way.

To finish with a slightly more positive note seems appropriate and Europe fits the bill. The revival seemed inevitable, given lower oil prices, a weaker exchange rate and the ongoing quantitative easing. However, in the midst of this there is still a Greek crisis bubbling away recent figures pointing to a Greek deterioration. Yet, if this were to be resolved, for the short term at least, the eurozone would see a further pick up. This would be of particular benefit to the UK given both the eurozone are each other’s biggest export markets.  

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