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Pound slides closer to euro as economic confidence slumps
Hugo Duncan19.12.08
Sterling was on the slide yet again today as it moved ever closer to parity with the euro.
The pound was down 0.7 cents to €1.052, while the euro was trading up 0.68p at 95.08p. At one stage the pound fell as low as €1.047.
It has now lost a quarter of its value against the single currency in the last 12 months while its 23% slump against a basket of world currencies is the worst since 1931, when the UK was forced to abandon the gold standard.
The latest slide came after Japan's decision to cut interest rates to almost zero pressured the Bank of England to follow suit. UK rates have fallen from 5.5% to 2% this year and could hit zero in 2009 as policy makers on Threadneedle Street fight recession.
A survey today showed confidence in the economy for the next 12 months hit a record low this month. Market researcher GfK NOP said its measure for the "general economic situation over the next 12 months" fell from minus 36 in November to minus 41.
But overall consumer confidence rose from minus 35 to minus 33 as shoppers looked forward to Christmas despite the expected problems next year.
Rachel Joy of GfK NOP said: "Consumer confidence improved this month after the interest rate cut and the drop in petrol prices, but still continues to hover at near-record lows. UK consumers have become even less confident about the future economic situation but, among these historically low levels of confidence, there is perhaps a glimmer of hope: there has been an improvement in the number of consumers who think now is a good time to make a major purchase, suggesting that high street deals and the small reduction in VAT have improved consumers views on this area. The crucial question for the economy is whether the improvement in this index will be translated into activity on the high street during the January sales."
The pace of decline in the UK economy over the last month has shocked many in the City. Capital Economics today downgraded forecasts made a month ago. It now expects the economy to shrink 2.5% next year, compared with an earlier prediction of 1.5%.
"Recent news on the UK economy has been even worse than we had anticipated," said economist John Higgins.
Ross Walker of Royal Bank of Scotland forecast decline of 2% next year - "the most severe contraction since the brutal recession of 1980-81".
Reader views (6)
better do your shopping now, everything will be 30% more expensive next year !
- John Hyde, london
"The pound in your pocket will still be worth the same"... unless you want to go abroad, in which case you would be better off taking some chickens or cows to barter with.
- Nobby Clark, Perth, Scotland
As plenty of people warned that dropping interest rates so quickly would collapse Sterling, and the Government/BOE went ahead and have dropped the rates, one can only assume that it is a deliberate policy to destroy sterling, stoke up hyper-inflation, and force the UK to be a province of Europe; Govt. thinking is maybe that if inflation can be stoked-up, then Govt. debt will be wiped out by such inflation..1 I wonder if Gordon Brown has considered his own position though should the electorate come out of their stupor and express their feelings...Roll on a General Election.
- Jon Kent, Hertford. UK
This is world reaction to Saviour Gordon Brown's plans to spend his way out of a recession with borrowed money - a flight from sterling. Great.
- Warrior Princess, London
Don't I remember Gordon Brown, in all of his Budget speeches, emphasising that "there'll be no boom and bust under Labour"? What happened?.
- Ray King, wood green london and kassel germany
Wow, I'm glad I bought TWO properties in Euroland years ago, with no mortgage, so I can still emigrate and only lose out on my pension income, but still afford the house!! Live in one let out the other for income.
Just like Harold Wilson, "The pound in your pocket will still be worth the same" Brown has done it again for Labour. Nothing changes.
Last one out please turn out the lights!!
- Mikey, Guildford
