By Susan Fenton
British Trade and Investment Minister Mervyn Davies said on Friday he is not worried about a further slide in the pound while saying a weak currency will help drive the British economy out of recession.
"When it comes to the state of the pound, obviously now we have a huge exporting opportunity," he told Reuters in an interview during a visit to Hong Kong.
Asked if he was worried about a further decline in the currency, Davies said:
"No. The currency markets are the currency markets."
The pound lost 26 percent against the U.S. dollar in 2008 and is up just 1.7 percent this year.
Davies said export competitiveness would help drive the British economy out of recession even though recovery was not imminent.
"If you're an exporter this is a great time to export because of the state of the pound," he said. "Tourism is up. There is global demand, it's all relative, it's just come down."
Davies said he had seen evidence of very strong forward order books in certain sectors of the British economy while travelling around the country in the past month.
"It doesn't mean to say we're going to suddenly bounce back, the world is having a difficult time," he said.
The pound's decline reflects the British economy's vulnerability during the global financial crisis and economic downturn because of its heavy reliance on financial services.
The OECD forecasts the British economy, which is in recession for the first time in nearly 20 years, will shrink 3.7 percent this year. while the IMF forecasts a 3.8 percent contraction, making it among the hardest hit industrialised countries.
Davies said the British economy was still more resilient than many people thought.
"I think that the UK's resilience … is there. We are still a hugely attractive economy to invest in, we have an open market, a flexible workforce, a mobile workforce," he said.
Fiscal stimulus around the world coupled with efforts to stabilise the global banking system and low interest rates should start to have an impact on the global economy over the next few months, he said. A pick-up in investor sentiment since the G20 summit in London last month was a good sign, he said.
"Stock markets have come back a bit. People have seen a very successful G20. Obviously those outcomes now have got to be delivered on," he said.
Davies, who was chairman of Standard Chartered Bank before being appointed trade minister in January and had lived in Hong Kong for several years, said he wanted to see China and its currency playing a much greater international role.
"The reality is the world has changed and China has a seat at the top table. The Chinese economy is now strategically incredibly important to the world," he said.
As China's trade with the rest of the world continues to increase, its yuan would become a global currency, Davies said.
China's central bank governor, Zhou Xiaochuan, last month called for the U.S. dollar eventually to be replaced as the world's main reserve currency by the IMF's Special Drawing Right (SDR), and for the SDR's basket of currencies to include currencies of all major economies.
Economists say an expansion of the SDR's basket would probably involve diluting the pound's 11 percent weighting in the basket, but Davies said he was not worried about that.
"I don't think that's a negative thing. It's possible," Davies said.
