Sterling neared an all-time low against the euro
Posted on 12/20/2007 7:40:04 PM PST by bruinbirdman
The pound has slumped to its lowest level in 20 months, after a "shocking" raft of figures revealed how deeply reliant the UK has become on debt.
Britain's current account has recorded its worst deficit since the late 1980s, making Britain's national balance sheet worse than the United States' for the first time since Nigel Lawson was Chancellor of the Exchequer.
Sterling neared an all-time low against the euro
Figures published by the Office for National Statistics caused a major sell-off of the pound, as experts warned that the UK currency would have to fall in value to bring the current account back into line. Sterling dropped to 98.9 on the Bank of England's comprehensive trade-weighted index, which measures it against a basket of other currencies. This is the lowest level since April 2006.
It also fell more than two cents against the dollar to $1.9813 and neared an all-time low against the euro, with the single currency worth 72.39 pence.
The pound's weakness followed ONS figures showing:
• The current account deficit almost doubled in the third quarter to £20bn. As well as being the biggest deficit ever in cash terms, at 5.7pc of gross domestic product it is now comparatively even bigger than the deficit in the US, and equals the worst-ever shortfalls in the past half-century, recorded in the 1980s.
• The domestic saving ratio, which measures how much of their incomes people are setting aside for the future, excluding pension contributions, remained deep in negative territory. At minus 1pc, it means families are borrowing in order to fund their everyday lifestyles - a highly unusual situation replicated in the late 1980s, before the last property crash.
• The amount families and businesses are having to set aside for mortgage and debt payments hit the highest level since the early 1990s, in the latest sign that the record mountain of UK lending is causing serious pain. The household debt service burden rose to 13.6pc of income - the highest level since 1991, while the equivalent measure for non-financial businesses hit 28.8pc of their profits - the highest since 1992.
• The Government's finances dipped even deeper into the red, as the Chancellor suffered a record shortfall on his budget in November. The ONS said public-sector net borrowing was £11.2bn - the biggest since comparable records began in 1993. It brings the total lending so far this financial year to £36.2bn, and raising the likelihood that Chancellor Alistair Darling will overshoot his £38bn forecast this year.
The current account deterioration was one of the biggest shocks in recent economic news, since not only did the ONS report the record third-quarter deficit, it also calculated that the shortfalls in previous months had been even bigger than previously thought.
Whereas Britain has previously been able to rely on income from its investments abroad, this stream of earnings has dropped into negative territory for the first time in six years, the figures showed.
Philip Shaw of Investec said: "The UK can live with a deficit of around 2pc of GDP but 5.7pc is a totally different order of magnitude. It means that the UK is spending much more than it is earning and the position is not sustainable."
Jonathan Loynes of Capital Economics said: "The UK's external position now looks pretty much as bad as that in the US, suggesting that the pound needs to fall sharply like the US dollar."
After hitting 26-year highs against the dollar earlier this year, the pound has now dropped by 6pc since the summer, while it has sunk 7pc against the euro.
Diana Choyleva, director at Lombard Street Research, said the drop in the currency's value indicated investor's collapse in confidence in sterling.
"I have been in this business for ten years and this is the most uncertain I've felt about the prospects for the UK economy. Things could get much worse."
Only socialist policies make this happen.
If the government was comparatively small, people would have their own money and be forced to work rather than get benefits from others who are, stupidly, working.
Defense is legit, as is the court system and police and some limited government offices.
The rest can go take a hike to the benefit of all.
Pound is up slightly after hours on the dollar after taking quite a beating the last few sessions. I do not do currency trading but if I did, I would probably bet against the Pound and Euro at this point after years of gains.
Lots of bucks went to Euro as it went up with Sterling. Many Pounds and Euros will now come home. Don't miss the boat coming back across the Pond.
yitbos
“There’s just one thing left to do.”
“Road trip.”
I had a correlating lagger in the woods outside my home once. Then I shot him.
IMO New european market mutual fund creation.
Next will be "emerging markets". Too many new ones.
I expect China funds to get whacked in the middle of next year. Maybe a month before or after the Olympics.
It might be advisable to heed the analysts who have said just in the last week that if the U.S. has a slowdown the rest of the world will not make up for it with their growth.
Much as one may or may not like Warren Buffet, he did say he only loves a low market. It is time to buy. That means U.S. dollar investment in foreign countries(remember 30% of that rise in ADRs is from currency differences) will be sold at the top and brought home to the U.S. market at its lows. Give or take 6 months, it is better to take profits.
yitbos
Just curious, any chance they want it to sink a little to make it more attractive to invest in Britain? More jobs and such? We've been holding off on a trip due to outrageous prices due to an abysmal exchange for the dollar. If it improves, we might take a trip across the pond to spend some time and money with our brave allies. I'd love to tour England and with Sarkozy in power, I'd take my beloved to Paris as well.
I don't think it works that way.
yitbos
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