Is a weakened Pound the spoon full medicine Britain needs to fight its economic recession?

Over the past few years, forex online investors have watched as the British Pound tumbled against its major currency counterparts. Since November 2007, the sterling has lost about a quarter of its value against the US Dollar and the Euro. While it is now trading around $1.54, analysts predict that the currency will continue to fall, trading around $1.48 by the end of the year.

While many Brits quiver at the mere thought of the devaluation of their precious sovereign currency, a weakened Pound may actually be beneficial for the U.K’s struggling economy. Whereas many of the world’s developed nations are already showing signs of a full economic recovery, the UK continues to battle with sluggish growth and a huge budget deficit – lagging behind its peer nations in exiting the worst recession since the 1930’s. A weakened Pound may be just the key ingredient Britain needs in order to restart its floundering economy.

A weakened currency is not only beneficial for Britain as it will boost economic growth by making British goods and services more competitive on world markets, thus increasing exports, but it will also help to rebalance the structure of the economy.

Recent government data show that exports are beginning to stabilize as Britain’s Office for National Statistics reported that in February that imports declined and exports rose at their fastest pace since 2003. While February’s figures are artificially high given that the previous month’s numbers were undermined by Britain’s worst winter in decades, they still prove that the poor January figures were a a mere blip and not a trend. More importantly, the February data highlights the increased demand from the U.S. and non-European regions—fueling hopes that a global rebound could lift Britain. Sales of British goods to members of the euro zone rose about 3% in February from January, the government reported, while sales to non-European Union members jumped 15%. Similarly, the International Monetary Fund now predicts the U.K. economy will grow by 2.5% next year, close to the U.S.’s 2.55%.

However, despite the help from a decline in sterling, economists still expect Friday’s GDP to report a week reading of 0.4% in growth – the same rate seen in the last quarter of 2009, when Britain managed to scarcely escape its 18 moth recession. However, most economists fell that it is only a matter of time, before Britain begins to see the full benefits of a devalued currency. After a less-severe downturn in the early 1990s, it took two full years before Britain’s economy began to see even the full advantages in trade given by a weak currency.

Britain’s currency economy state has become the key issue in the upcoming national elections (scheduled for May 6th). With consumers burdened by debt and the government wrestling with a massive budget deficit, exports are increasingly seen as the key to recovery. To boost that sector of the economy, policymakers have silently welcomed the sterling’s drop in value over the past two years.

While a strong currency is desirable during periods of economic “boom”, when economic activity needs to be restrained to prevent inflation, a weak currency is sought after during times of economic downturns. Right now, every big economy in the world, with the possible exception of China, needs extra stimulus — and therefore wants to have a weak currency. But that, of course, is impossible, since as every forex investors knows for every currency that weakens another currency increase. And it is this mathematical fact that could well turn out to be a significant economic headache in the year ahead for Britain. If the economic recovery in the Euro Zone and Japan turns out to be slower than in Britain, while political conditions in America continue to deteriorate, the current weakness of the pound may be impossible to sustain.

So as while many Brits remain fearful that their currency will continue to fall, and that their money will be worth less abroad, they should really be concerned that their currency will begin to rapidly appreciate, stalling Britain’s recovery from the worst recession since the Great Depression.