British industry can not cope with strong pound

In a fine example of Sod's Law, the pound fell even further from its recent peak on the publication of an authoritative report from the National Institute warning that the strong currency would damage exports and the economy. Yet with so many companies complaining about their currency woes in recent weeks, perhaps it is still too high.

Or perhaps the complaints are another manifestation of the British disease afflicting exporters whose only idea about building and retaining markets is cheapness. First of all they take the impact of a strong pound on their export margins. Later, they lobby for lower interest rates so that a devaluation will bale them out. What a contrast to the attitudes of exporters in our big trading partners. For a decade and a half, French and German companies have had to bend to the discipline of a strong exchange rate. They have reacted in their usual way, by improving quality and service. Both countries have a trade surplus despite having currencies that trend upwards.

It is only since the autumn that the pound has risen. It has not yet regained the level, just under DM2.78, from which it plummeted out of the exchange rate mechanism in 1992. In inflation-adjusted terms it is well below its level five years ago. Any well-managed big company would have hedged its foreign currency exposure for about six months - that is, until the end of March. But only three months of an elevated exchange rate is enough to have dozens of industrialists posturing about the pain.

No doubt they are right, and British industry will not be able to cope. They will have to hope that the pound will soon revert to its normal trend - downwards.