The FT is stirring from its sleep again - - - -
The public, it seems, are more realistic than the CBI or the government.
xxxxxxxxxx cs
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FINANCIAL TIMES 29.12.08 at 12.23 pm
Pound drops to fresh record low against euro
By Peter Garnham
The pound dropped to a fresh record low against the euro on Monday,
falling closer to parity against the single currency on expectations
that UK interest rates are heading lower.
The pound has suffered against the euro - dropping a record 17 per
cent this month alone - as investors bet that the Bank of England
will slash interest rates, which currently at 2 per cent, at its
policy meeting next month.
Bank officials have hinted that the UK could follow the US an adopt a
quantitative easing approach to monetary policy - pumping money into
the financial system once rates effectively hit zero.
In contrast, the European Central Bank has adopted a more hawkish
tone, indicating that it will keep eurozone interest rates on hold as
it assesses the impact of the global economic slowdown.
The gloom surrounding the UK economy was heightened on Monday as
figures revealed that UK house prices dropped 8.7 per cent in 2008.
Reports over the weekend suggesting the UK economy could shed 600,000
jobs next year also weighed on sterling.
Analysts said reports that the post-Christmas sales had started off
strongly gave little support to sterling.
Howard Archer. at IHS Global Insight, said the apparently strong
start to the sales was not that surprising, given the beginning of
the sales was when the best bargains generally occur.
He said that once the best of the bargains were gone and consumers
had got what they most wanted or needed, "we suspect that the
interest in the sales will fall away quickly".
"We strongly suspect that the sales effect will be temporary and that
retailers will face a desperately difficult 2009," he said.
"This will keep pressure on them to price competitively through next
year, which will obviously impact on margins. As a result, many more
retailers seem likely to go under in 2009."
The pound fell 1.9 per cent to a record low of £0.9776 against the
euro, dropped 1.9 per cent to SFr1.5335 against the Swiss franc and
lost 0.5 per cent to Y132.25 against the yen.
On a trade weighted basis the pound fell to 74.7, the lowest on daily
records kept by the Bank the England that date back to 1990.
The pound's losses were less acute against the dollar, however,
easing just 0.1 per cent to $1.4644.
Analysts said the dollar had lost its appeal since the onset of
quantitative monetary easing in the US earlier this month.
"In this new environment, disappointing US economic data are seen as
building the case for even more aggressive quantitative easing, and
therefore a greater supply of dollar and consequent dollar weakness,"
said Daragh Maher at Calyon.
He said there might be more chatter about the likely fiscal response
to the economic downturn from Barack Obama, US president-elect, with
the suggestions as to its likely scale growing by the day.
"But here too, the market spin may be that it points to yet more
dollars being pumped into the system," said Mr Maher.
The dollar fell 0.8 per cent to $1.4646 against the euro, lost 2 per
cent to SFr1.0461 against the Swiss franc and dropped 0.4 per cent to
Y90.38 against the yen.
Elsewhere, the Russian authorities took advantage of the weak dollar
to continue their devaluation of the rouble.
The Russian central bank let the rouble fall 1.5 per cent to 34.31
against its euro/dollar basket, its ninth mini-devaluation over the
past month.
=-=-=-=-=-=-=-=-=-=-=-=
2. Britons wary of upbeat forecasts, poll finds
By Alex Barker, Political Correspondent
Most Britons believe the recession will last for two years, according
to a Financial Times/Harris poll, suggesting people are unconvinced
by the government's economic forecasts.
Their pessimism about the length of the recession contrasts with the
forecasts of Alistair Darling, chancellor, who has predicted fiscal
stimuli, a weaker pound and cheaper oil will help the economy return
to growth in the second half of next year.
According to the FT/Harris poll, most of those questioned believed
the recession would not end before 2010, with 38 per cent believing
the economy could contract for more than two years. Just 18 per cent
agree with the chancellor's prediction that the recession will end in
2009.
The evidence of a confidence gap between ministers and the public
came as Gordon Brown prepared to deliver an upbeat new year's
message, evoking Britain's wartime spirit as an antidote to the
downturn.
"The scale of the challenge is matched by the strength of my
optimism," Mr Brown is to say, as he chastises those who "talk down"
the economy's resilience.
The warning to avoid excessive pessimism was echoed by Richard
Lambert, director-general of the CBI, who urged his members to take
the "longer view" to ensure they retained the staff to benefit from ?
recovery.
In his new year message, Mr Lambert warns that "a painful recession"
will test support for the market economy and require "new thinking"
from business, including developing an "exit strategy in order to get
the private sector back in control of its own destiny".
Public gloom over the economy was underlined by a Chartered Institute
of Personnel and Development survey showing that almost a third of
employees expect their pay to be frozen or cut in 2009.
Citing the prospect of unemployment passing 3m by 2010, the British
Chambers of Commerce was set to call for a freeze in the minimum
wage, arguing that it "made no sense" to increase the rate "when jobs
are being lost daily". The business group estimated that increasing
the minimum wage at the same rate as 2008 could cost businesses £300m.
In spite of their pessimism over the recession, the FT/Harris poll
suggests British consumers are showing some resilience. Almost half
said they spent the same as last year through the festive season,
while 42 per cent said they were being more frugal. [This 48
(approx) -42% split is hardly a ringing endorsement! And one has to
ask how much of this is by the use of increased credit? - If so
we've even greater troubles ahead! -cs]
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