Sterling slip-slides away
Fraser Nelson 6:12pm
Another day, another plunge for sterling - it's at E1.022 and the slide shows no sign of tailing off. The world is beginning to worry that the kids are running the sweet shop in the British economy - and that mum has gone to Iceland. Well, not quite, but the Reykjavik-on-Thames scenario - while still very unlikely - is becoming vivid enough to cause alarm. So far this month, sterling is off 13% against the Euro and 16% against the Swiss Franc (probably the most stable currency right now). And today's 1.43 US$ to the pound is still far removed from the $2.00 we had until August.
It is obvious that Brown will have to plead for yet more borrowing in the next budget – and, given that his last set of forecasts were fictitious, why should there be any confidence any repayment this time? A kind interpretation of sterling's fall is that the market is naturally adjusting to the prospect of another Bank of England rate cut. But that doesn’t explain why Britain’s credit default swap (the premium which shows how likely a country is to default) has soared. It’s now double that of France and treble that of Germany. For reasons that perhaps a psychologist can best explain, Gordon Brown's soundbites are normally the precise reverse of the truth. Best placed to withstand the economic downturn? The market thinks the exact reverse is true, hence everyone is ditching the GBPeso. And with UK gross debt at 400% of GDP, four times that of America, no wonder.
Previous
Comments
kinglear
December 29th, 2008 6:34pm..and the markets aren't even at full toot at the moment...
Chris
December 29th, 2008 7:12pmWell, when everyone knows that the pound will be devalued at the first sign of trouble (sorry "fine tuned to suit UK economic conditions") it's hardly a surprise is it? The crass stupidity of not joining the euro is costing us all dear. By the way, haven't you got a sign?
Sally Chatterjee
December 29th, 2008 7:21pmThe "Reykjavik-on-Thames" scenario is actually the honourable one: to admit the game is up and commit to hard reforms, time to pay back the debts.
Sadly the London-on-Thames scenario looks like it'll be one of printing money to inflate your way out of debts. I'm no money expert but this sounds like an untested experimental move to me. Given we entrusted the likes of Ben Benanke, Mervyn King and Gordon Brown to prevent the very crisis we are in, letting them manage a colossal economic experiment is surely asking for more trouble?
Bob
December 29th, 2008 8:20pmAlmost right.
As I just commented on Guido. After the rise of the Euro from around 1.46 to 1.58 against the Swiss Franc in November I bought a EUR/CHF put. Over the last few weeks it has fallen back to 1.4750.
Not really that stable, you have to bear in mind the disasters that are Credit Suisse and UBS, we do however have loads of gold, mostly other people's.
Now rates are at the bottom in Switzerland (Though they have been negative in modern history), the Eurozone can only catch up, I guess that explains the current moves, that and impending global financial disaster.
It is the opinion of many that the fat lady has yet to sing her last. I tend to agree so sold the US market today, albeit in a minor way.
Fraser Nelson
December 29th, 2008 8:36pmChris, the Spectator computers still can't stomach the sight of that Euro sign. And dont you think we'd be in an even bigger mess if we couldnt devalue? I admit the ECB played it better than the BoE but that's because we had bungling Brown and they didn't...
hadrian
December 29th, 2008 9:06pm'Bungling Brown'..now there's an epithet you must make stick so maybe it'll end up his epitaph.
Athesius the Facilitator
December 29th, 2008 9:43pm"Bungling Brown", so simplistic yet so cutting. Mmmmm.
Paul B
December 29th, 2008 10:53pmWe should relax about the value of the pound- a sinking pound is what will eventually save the economy. About the only thing Brown ever got right was not taking us into the Euro and he did that more by default rather than as a positive decision
oldtimer
December 30th, 2008 10:40amBungling Brown has the right ring to it. And, in the interests of elegant journalistic variation, you may wish to resurrect that WW2 character the Squanderbug.
Waste was anathema in WW2 - for obvious reasons it was a time of make do and mend. We are in such times again. It now seems appropriate that Brown, above all others, also deserves the description Squanderbug Brown.
Paul B
December 30th, 2008 2:14pmSquanderbug Brown- what an excellent title for a what could be a really cruel caricature of the PM. The Speccie ought to think about commissioning it cartoonists to draw up evil looking, kilted leach type (blood/money sucking)creature, that its gradually but inexorably destroying the UK, with its incessant hunger for more and more of it citizens money.
Jim C
December 30th, 2008 8:43pmBeware you do not let your understandable hatred of Brown lead to you talking gibberish about the pound.
The pound will rise against the Euro in 2009, perhaps to even higher than 1.50. Brown is a serial bungler, but:
(a) he only has 18 months max left;
(b) Euroland is in for the mother of all recessions in 2009;
(c) we will be out of recession first.
hadrian
December 30th, 2008 9:41pmI do like the 'kilted' bit,Paul, but beware of alien alienating more Scots and giving proaganda to the anti-South/Establishment prejudice machine up here. Not that it'll make terribly much difference.
Anyway, true Scots are supposed to be famously canny with the bawbees, not irresponsibly spendthrift!
Fraser Nelson
December 30th, 2008 10:39pmJimC - I'm open to persuasion on this but dont you think the market has factored in b) and given the tax rises Brown has in store for us how do you think c?