As I understand it, a No Deal Brexit will see the UK's current trade deals with the EU cut off immediately without a grace period to renegotiate. It's generally accepted that this will cause the value of the GBP to drop, since the UK will have very little leverage in deal negotiations, so it will be more expensive to import goods, which then falls to the consumer as a price increase. I understand that fine. But doesn't this create a positive feedback loop? If the value of the pound falls, that means it has less buying power, which means prices will increase, which means the value falls... repeat ad nauseum.

Am I misunderstanding something here? Am I simply describing regular inflation, and it happens too slowly to be considered hyperinflation? Or is this a real risk posed to the UK?


This would proceed in a course that will have price growth in line with "regular" inflation. Hyperinflation requires inflation to rise by 50%. The UK does do a lot of exporting, so as the pound drops there will be more people demanding exports which will help the value of the pound. The UK exports 55 billion pounds and as the pound falls more countries will want the exports since they are cheaper. While inflation is a risk for a deal, it is more of a symptom of the real problems that Britain will have.

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  • Of course, I hadn't considered exports. Could you elaborate on that last bit? – scatter May 28 '19 at 12:22
  • Another negative feedback mechanism which would act against the "runaway inflation" is that rising inflation would lead to the Bank of England raising interest rates and making Sterling more attractive to foreign investors, supporting the value of the pound. Similar games are currently being played in Turkey with the Lira. – timday May 28 '19 at 12:37
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    @timday yeah I kinda forgot to include the monetary policy side of it. Thats what you get for answering during a class. – Jake Freeman May 28 '19 at 12:49

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