Accounting for the stability of the UK terms of trade
Conall Mac Coille (),
Karen Mayhew () and
Kenny Turnbull ()
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Conall Mac Coille: Bank of England, Postal: Threadneedle Street, London, EC2R 8AH
Karen Mayhew: Bank of England, Postal: Threadneedle Street, London, EC2R 8AH
Kenny Turnbull: Bank of England, Postal: Threadneedle Street, London, EC2R 8AH
Bank of England Quarterly Bulletin, 2009, vol. 49, issue 4, 286-292
Since the middle of 2007, the sterling effective exchange rate has depreciated significantly. Over the same period the UK terms of trade — the price of the United Kingdom’s exports relative to imports — have remained broadly unchanged. Movements in the exchange rate can affect the price of exports relative to imports. But the timing, size and even direction of the impact on the terms of trade will depend on how companies respond to the movement in the exchange rate. This article considers the factors that determine how the terms of trade move in response to an exchange rate depreciation, and investigates what lies behind the stability of the UK terms of trade since 2007.
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