Neville Prior

British Finances, Sterling et al

Neville Prior  21 September 2009 11:54:09 AM
The headline reads "Pound plumbs five-month Euro low", but what story does it tell? Well, the Pound has fallen to its lowest level against the Euro since April, and fall it has, reaching a bottom of 1.1016 Euros to a Pound. It also fell against the US Dollar to a three week low. There must be a reason!!

These movements came on the back of a warning that UK public debt may not be sustainable, and a caution from the "Old Lady" at the Bank of England, that investors may be less willing to purchase UK assets, thus hurting long-term exchange rates. The B of E in its quarterly bulletin noted that the UK had run current account deficits for over a decade. This is fine as long as that deficit is offset by foreign investors purchasing UK financial assets, which they were. However the crisis may well have lead those investors to reassess their purchase of Sterling assets. The result is a fall in the sustainable Sterling exchange rate.

Just so that you know, the government's overall debt now sits at a massive £804.8bn, or 57.5% of GDP. This is an increase of £172bn on last year. Some of Michael Portillo's predictions cited by me earlier this month look as if they may be right!

1Natalia McDonagh  23/09/2009 9:01:02 AM  British Finances, Sterling et al

"Some of Michael Portillo's predictions cited by me earlier this month look as if they may be right"- and that what probably hurts the most :)

2Neville Prior  24/09/2009 10:37:01 AM  British Finances, Sterling et al

Natalia, thank you for your comment. Mr Portillo was painting a worst case I guess, there are many alternative scenarios. One recent offering, was that we should not panic, the situation is not as bad as made out..................we'll see!

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