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Pound parity with euro may be only weeks away
Robert Lea11.12.08
The pound slumped to a new low today as the run on sterling looked set to take the UK to unprecedented parity with the euro within weeks.
The crash in the value of the pound came as latest manufacturing figures showed the depth of the UK's industrial slump, a recession which a leading Bank of England rate-setter said will continue to deepen until the end of next year.
In further bad news for holidaymakers and importers, £1 was today capable of buying just €1.127 on the foreign exchange, or even less at the tourist rate in the bureau de change, where £1- €1 parity is already almost a fact of life.
In trading today the pound gave up another 1.4 euro cents, down from €1.141 at last night's close, representing a crash of around 12% since September and a devaluation over the past
18 months of around 25%. At the beginning of the decade, sterling could buy nearly €1.75 on the foreign exchange.
Latest data from the CBI reveal British manufacturing remains in the depth of depression.
Its latest industrial trends survey found 56% of manufacturers expecting their output to fall, a more pessimistic outlook than at any time during the 1990/91 recession and the worst figures since the depression of 1980 following Margaret Thatcher's election victory.
The survey also found 52% of manufacturers said their order books are down while 45% of exporters said their orders are down despite a weaker pound supposedly making their life easier. “This is depressing reading,” said the CBI's chief economic adviser Ian McCafferty. “It is worrying that despite the 20% depreciation in pound sterling over the past year, export orders remain so weak.
“Our export competitiveness is increasing but many of our key export markets are contracting rapidly.”
Kate Barker, the third-longest serving member of the nine-strong monetary policy committee, says she does not believe the slump in the UK economy will stabilise until the end of next year. Her comments hammered home the Bank's view the UK economy will at least equal the five quarters of contraction seen in the 1990-91 recession.
“The UK economy remains very weak. My short-term outlook is not strong,” said Barker.
“It's very hard to be optimistic in times like these but there have been a number of interventionist policy actions such as interest rate cuts as well as fiscal and banking actions that will eventually work their way into the economy and in the end bring about a recovery, or at the very least stabilise things.
“I think the real issue out there is that a lot of companies are destocking and at the same time reducing their debt levels.
“They're working through their stock now and I think we'll also start to see that cycle turn toward the end of next year. I anticipate there will be a recovery toward the end of next year, by which I mean there will come a point where I don't expect things to get worse. But it is the pace of that recovery which is hard to judge.”
Following the MPC's drastic interest rate cuts in the UK to 2% this autumn, the first time since 1939, the Swiss central bank slashed its interest rates to just 0.5% today.
Reader views (11)
the strength of a currency also has a lot to do with the cofidnece that the market has in those at the helm.
They have spoken and the free fall will continue until Mugabe Brown and his are arrested, and the there is a free and fair election, without the gerrymandering effects that Mugabe Brown and his cohorts put in place and the removal of threat of arrest of his opposition so that they may canvas freely.
I do not have the benefit of leaks (unless you regard news items are leaks), but the evidence of the wrongdoing of 'Mugabe' Brown and his predecessor govt (of which he was a principal) has been in the public domain for a long, long time.
- Hugh, Middx
Phil: "The downward slide of the £ over the last decade mirrors New Labour in power, in the same way that it did in the late 1970s."
When Mrs T. came in to power in 1979 the rate was about 2.05; by Feb 1985 it had dropped to 1.09, and was only 1.63 when Tony Blair took over, 1.50 as I write this. So during their term in office the Conservatives saw the pound fall by 20% against the dollar; during this government's incumbency (shorter admittedly) it's gone down by just 7%.
- Tonyb, Melbourne, Australia
One of the main reasons I came to live in France, 20 years ago, was to be a part of building Europe, something my compatriots have always considered themselves to be above. Maybe soon the British will finally want the Euro; the question is, will the Euro want them?
- Chris, Bullion France
The downward slide of the £ over the last decade mirrors New Labour in power, in the same way that it did in the late 1970s. The party of total financial mismanagement.
- Phil Jones, London UK
These same people were calling oil at $200 and £$ at 3.00
When you start to see these stories appear day after day it's time to do the opposite.
- Mark, gibraltar
Take a look at CNBC website traders in the US think the Euro's on a short life expectancy - Germany may oneday soon start to ask for its deutschmarks back.
- Wallytrader, London
As Brown once said "a weak currency is the sign of a weak economy". I bet he wishes now that he could eat his words.
- Roger Slade, Winchester, Hampshire, England
These "experts" would struggle to forecast the date when Christmas falls. Don't listen to a word they say.
- Nobby Clark, Perth, Scotland
Well with the magic Brown at the steering wheel and if you belief his shoutings we have saved the world!
- Georgie, Islington, London
What an expert! She could not see recession on the horizon when everyone with an ounce of common sense could (especially Mr Blanchflower who is so fed up with his short-sighted MPC colleagues and the feeble Governor that he is resigning from the MPC). Ms Barker is partly responsible for the depth of the recession and the losses of jobs and business failures and should be sent to the Gulag with the rest of the committee and with King, Darling and Brown.
- John, London
And these are the people who said we would avoid a recession.These people get the forecast wrong even if its only 2 weeks old. They are totally usless
- Eddie, SW19 1QG
