The UK's deficit on trade in goods with the rest of the world fell to an 18-month low in December. Britain's goods trade gap fell to £7.367bn from a record £8.114bn in November, the Office for National Statistics (ONS) said. That was the lowest the gap - the difference between imports and exports - has been since June 2007 and was well below analysts' forecasts of £8.1bn. The narrowing gap was driven by a 2.5% fall in imports rather than an improvement in exports. The ONS provisionally estimated the trade deficit for 2008 as a whole at £93.2bn, compared with £89.3bn in 2007. Do you think there is a strong link between the weakening of the pound and the fall in demand for imports?
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Link between the weakening of Sterling and the fall in imports...well I'm not so sure, bit of a grey patch for me really. However I believe that generally if the UK imports more from abroad then we need to sell more Sterling for Euro, Dollar, or whatever...which increases our supply of Sterling and therefore depreciates the value of Sterling. This would appear to be the opposite of the link in question.
Surely, the weakening of Sterling would be to do with low interest rates (1% now) which is just not going to be attractive to overseas investors and they won't be buying Pounds so the currency remains weak or depreciates more.
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