Morning:
8°c
‘Sterling is finished’ claim after 6-cent slump
Robert Lea21 Jan 2009
The pound crashed to its lowest levels since 2001 today — down a staggering six cents, below $1.40 — as one of the world's leading investors declared: “Sterling is finished.”
The weakness of the pound also brought a renewed slump against the euro, as the British government's second banking bailout appeared to have been written off as a failure, and against the backdrop of the Treasury giving the Bank of England permission to print more money.
Jim Rogers, co-founder of the Quantum Fund, the main hedge fund of George Soros, the man who broke the Bank of England in 1992, today declared: “I would urge you to sell any sterling you might have.” Speaking to Bloomberg news agency, he added: “It's finished. I hate to say it but I would not put any money in the UK.”
Traders on the foreign exchange took Rogers and countless other bearish analysts at their word.
Sterling crashed to $1.3884 against the dollar, a fall of 6.46 cents on the day. Against the euro, the single European currency was trading 2.44p stronger at 93.04p, with the pound valued ever closer to parity at just €1.2926.
In fact the pound was in reverse against all 16 major actively-traded currencies in the world as latest inflation figures saw economists predicting a stagnating economy in the UK would be further mired by deflation. “The British economy is in deep trouble and investors are in no mood to hang around and wait for a pick-up,” said IdeaGlobal's foreign exchange head Maurice Pomery.
Other currency specialists warned there is now a real risk credit-rating agencies could follow their move on Spain and downgrade British sovereign debt, making it more expensive and more difficult for the Treasury to raise money on the world's capital markets.
With official GDP figures at the end of the week expected to show the depths to which the UK economy has contracted, the rate of decline shown in today's consumer and retail price indices indicate, say the City, a lurch deep into deflation in the coming months.
Other official figures tomorrow will show the huge borrowing hole in the public finances and give the latest snapshot on soaring unemployment.
Out today, the headline Consumer Prices Index, which the Bank of England is meant to control at or around 2%, fell to 3.1% in December from 4.1% in November as the price of oil further collapsed from its midsummer highs.That is the sharpest fall in inflation since the last recession in 1992.
The Retail Prices Index -— seen by some as a truer indicator of the inflation rate — fell from 3% to 0.9% in November. “Further sharp falls are still expected over the coming months, with RPI inflation possibly entering negative territory within a couple of months,” said Hetal Mehta of Ernst & Young's highly regarded Item Club economic forecasting unit. “Item forecasts RPI inflation to average minus 3% this year.”
All eyes are now on Mervyn King, the Governor of the Bank of England, who is due to make his first major speech tonight since being told by the Treasury that he can now increase the money supply.
Reader views (17)
I agree with the man from Roeselare, the UK should have joined the Euro right at the start. As a regular visitor to Belgium it is clear that they have a far higher standard of living than we in the UK.
- Neil, Gloucestershire, England., 12/02/2009 13:01
Report abuse
Dear Andrew - what control of our economy and currency do we have now?
- Ca, London UK, 22/01/2009 00:15
Report abuse
Were people not saying this about the US Dollar a year or two ago??
Swings&roundabouts. The pound will be back.
- Russell, London, 21/01/2009 09:16
Report abuse
Arthug from Belgium: ...of course, let's joing the Euro..and lose ALL control of our economy and currency. The only thing worse than the present situation would be the present situation AND THE EURO!
- Andrew, London, UK, 21/01/2009 04:15
Report abuse
It really is a scandal that Crash Gordon is not removed from office. They'd soon get rid of him if the whole country said "enough is enough" and called national strike!
- Mel Barrows, Tenerife. Canary Islands., 20/01/2009 23:51
Report abuse
Ethan, you are right! The maths simply don't add up and everyone except the government, knows it. The RBS has 'known' debts of 45bn. It has a current market cap of 4.5bn. The Uk banks are probably sitting on further toxic assets of over 100bn. That is in addition to the additional 200bn being funded in the credit insurance scheme. Will another 50bn with no strings, do the trick and save the world? We don't even know where the other 37bn went. You couldn't invent this story. Even the BOE can now print more money! No wonder the world looks on in amazement at an economy that is falling apart in front of our very eyes. I think there should be a vote of 'no confidence' in the present management of GB PLC and the sooner the better!
- Ray, Milan, 20/01/2009 16:16
Report abuse
It happened after Labour was last in office in 1979. The bankrupt U.K. had to go hat in hand to the I.M.F. for a bailout. After 11 years of Labour, it's happening all over again. When will the British people ever learn?
- Phil Jones, London UK, 20/01/2009 16:12
Report abuse
If we still had any Gold left we could have at least underwritten the currency, maybe we would have had to revalue it at £1500 an ounce, but foreigners who finance our debts would be guaranteed something in the worst situation, as is now. A £50 pound note is just a piece of paper, backed by a promise from Mr. Brown. But alas we sold all our Gold at $250, so we are back to printing paper and whispering 'trust me'.
- Bondy, london, 20/01/2009 16:12
Report abuse
What the hell do people expect if interest rates are lowered so drastically as they have been?-Against all common-sense reason(rates should have gone UP, not down); imports are now far costlier, and at our current interest rates no one wants sterling, and it isn't worth banks lending at such low rates; the remedial actions for this credit crisis are all wrong, and it is a matter of urgency that Brown and Darling arer replaced by someone who knows what they are doing.
- Jon Kent, Hertford. UK, 20/01/2009 15:22
Report abuse
The banksters are doing what they did in the 1930s: deliberately withdrawing money from circulation then debasing the currency by printing bank notes. This will create the conditions for martial law and total social control. Unless we withdraw our support from the "system" then we are willing co-creators in our imprisonment.
- Neil, london uk,, 20/01/2009 14:54
Report abuse
We are all scared of what Crash Gordon has done.
- Peteo, London NW1, 20/01/2009 13:20
Report abuse
Let's remember the wise words of The Sound of Music.... how can you weigh a moonbeam in your hand!"..... Sterling is just another moonbeam today!
- Geoff Herbert, Lara, Australia, 20/01/2009 12:45
Report abuse
This is why the pound is in freefall. Crash just lost nearly six billion of our cash playing on the stock market.
Probably the worst deal ever - worse than the Conservatives' Black Wednesday
At close of business last Friday, the UK government held £5 billion in preference shares and a 50% of the ordinary shares of RBS. I calculate the market cap of all of the company’s ordinary shares at £8.33 billion, so the total government holding of prefs and ordinaries would have been worth about £9.16 billion.
At the weekend the government cut what it thought was a good deal to exchange the prefs for ordinaries at a price 8.25% below the Friday closing price, giving the government a 70% interest in the ordinaries. Unfortunately the share price fell 67% on the day leaving the market cap of RBS at £4.58 billion, and the UK government’s 70% share at £3.2 billion. So instead of getting a benefit of a £400m discount on the conversion price, the government took a £5.96 billion loss on the day.
Crash cannot hide the truth from us blog readers...maybe thats why he wants to regulate blogs.
- Ethan Edwards, UK, 20/01/2009 12:04
Report abuse
EMU won't have us, Arthur, as we don't make the qualification criteria! And a lot of the latest fall is down to a stronger USD - we still have a little way to go to match the December trade weighted low.
- Paul, London, 20/01/2009 12:03
Report abuse
This is one disaster after another. Will Crash Gordon go down as THE WORST ever in UK history?? This has to be stopped we have to get rid of this Nu Labor mess.
- Georgie, Islington, London, 20/01/2009 10:56
Report abuse
I think a general strike should be called in the UK to get rid of the idiot Brown the man in charge for the past ten years who over taxed and over spent
- A Tyler, Tokyo Japan, 20/01/2009 10:28
Report abuse
The only way for the UK to go is to joint the Euro common currency with out delay!!!!
- Arthur Lincoln, Roeselare, Belguim, 20/01/2009 09:35
Report abuse
