On October 28th 2016 the ONS published a piece
concerned with the implications of changes in the exchange rate for sterling (http://visual.ons.gov.uk/why-has-the-value-of-the-pound-been-falling-and-what-could-this-mean-for-people-in-the-uk/).
In this article it says: “A fall in the pound means that UK exports will be
cheaper for customers in other countries to buy. This should help UK companies
increase the amount of goods and services they sell to the rest of the world
which would bring more money into the UK – potentially increasing employment,
growth and therefore living standards.” But this is utterly flawed.

Data extracted from past issues of the ONS “UK trade in
goods publication tables” unambiguously give the lie to the article’s assertion.

Here they are:

The figures indicate that devaluation of sterling in
conjunction with the Great Financial Crisis was substantial: from $2.00 in 2007
to $1.55 in 2010; a fall of 22%. In consequence, the traded goods price index for imports went from 76.2 in 2007 to 92.0 in
2010; a rise of 21%. Meanwhile the traded goods price index
for exports went from 75.6 in 2007 to 92.7 in 2010; also a rise of 23%. So neither in absolute nor in relative terms did
UK exports become cheaper as a result of this substantial devaluation.

In fact these data are precisely in line with what ought to
be expected. In reality, the prices of all tradable products are set in the
global market-place and denominated in $US. Then these global prices, which
apply both to UK imports and to UK exports, are translated into sterling via
the exchange rate. Hence both the prices of exports (when expressed in
sterling) and the prices of imports (when expressed in sterling) will rise as a
consequence of sterling’s depreciation.

Before posting this, I took a look at the most recent
version of the ONS balance of payments database and calculated the correlation
coefficient for the series giving prices of exports (BQAJ) and imports (ELAZ):
it was +0.99. And this ought to come as no surprise since, according to the 9th
November issue of the ONS “UK trade in goods publication tables”, you only need eight
types of product to account for more than half of UK exports and you only need the
same eight
to account for more than half of the UK’s imports as well.
The categories are: Mechanical machinery; Cars; Medicinal & pharmaceutical
products; Electrical machinery; Other miscellaneous manufactures; Scientific
& photographic equipment; Crude oil and Refined oil. So no wonder prices of
imports and exports move together: their prices are those of the same types of
products and come from the same world markets.

The price relativity which actually does change as a result
of devaluation is that between traded goods, for which prices are determined in
world markets, and non-traded goods (such as places in residential care homes),
for which prices are determined locally (i.e. directly in sterling). Hence the
major economic consequence of exchange rate change is a rebalancing of the
economy between the traded and the non-traded sectors (as their relative prices
are altered by alteration of the exchange rate). A fuller consideration of this
analysis, incorporating detailed estimates of the relevant relative magnitudes
(based on the ONS Supply & Use Tables), is available at: http://www.stparsons.co.uk/files/britains_economic_situation_2013_final_edit.pdf.