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Sterling (Exchange Rate)

Volume 35: debated on Thursday 27 January 1983

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asked the Chancellor of the Exchequer what is the relationship between a decline in the effective exchange rate for sterling and improvements in the United Kingdom's relative competitiveness.

A fall in the exchange rate will lead a short-run improvement in competitiveness. However, in the past the resulting rise in import prices has been followed by a rise in earnings which has eroded the initial gain in competitiveness. If the recent fall in the exchange rate is to improve competitiveness in the longer term then it is essential that recent progress in reducing wage settlements to sensible levels and improving productivity be sustained.