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A leading City economist today warned that the UK faces a currency crisis after the Bank of England allowed the pound to become “seriously undermined”.
Stephen King, chief economist at HSBC, said: “There's always a risk of a sterling crisis. It clearly is already a currency that's been seriously undermined.”
The pound was trading against the US dollar at above $2 and at 1.50 before the financial crisis struck.
But ballooning levels of government debt and a bearish stance on Threadneedle Street — where Bank Governor Mervyn King said a weak pound was “helpful” in rebalancing the economy — has pushed sterling sharply lower although today it was up 0.14 cents to $1.6283 and 0.26 cents higher at 1.0911.
HSBC's King said the pound is “extremely weak”, adding: “Part of this is the benign neglect on behalf of policy-makers who were quite happy in a sense to see sterling fall. The problem with admitting that you're happy about it is that a small fall can turn into a very large fall, so yeah, there's definitely a danger there.”
On the dollar he said: “The risk for the next year or so is that the dollar remains weak and possibly gets even weaker, particularly against the emerging currencies but possibly also the yen and euro.”
Reader views (4)
HSBC is right regarding the pound sterling. It is the Government printing money, selling assets and refusing to cut public spending. Only a matter of time before the reality hits home that the UK Government is living beyond its means. Just how good has Labour's (Mr Brown's) management of the UK economy been since 1997?
- Andrew, London
Just enjoyed a hefty lunch of green shoots and humble pie - but dreading indigestion!
- Ted, London
Sterling is down 30% against the euro in 2 years, neither the BoE nor the UK govt appear to have 'strong sterling' tendencies, budget deficits are growing into the realm of unmanageable, there is significant political uncertainty, domestic output is contracting and import dependencies on the rise....sterling is overvalued despite the decline, and we continue to pray that following a US policy of ignoring exchange rates as an instrument of policy is the best approach. We are not the US and our economies are structurally and significantly different. Stephen King is spot on with his warnings.
- Ed, Barcelona
We are not facing a currency crisis, we have been in it since the pound dropped to €1.50. I suspect that the governmet had a secret adgenda to take us into the Euro assuming that they would win the next election, and Saroski stated last year that "The pound was too high" but why should he say that unless our entry was under dissussion. Look at all our assets like power stations being bought cheap by the French and others, only because the pound has dropped from when it was €1.65. Harold Mackmillan mentioned "selling the family silver" when have now moved onto the cups and saucers.
- Jim Allan, Lake District
