Britannia Radio

SUNDAY TELEGRAPH   14.12.08
Weak sterling means the UK will take a pounding
Sound as a pound? I think not. Sterling hit a record low against the 
euro five days in succession last week. Since January, the pound has 
now fallen by a fifth against the single currency.

By Liam Halligan

This drop was brought home to me on Friday when I fell into 
conversation with some French pensioners in London doing their 
Christmas shopping.
It seems the UK's capital, long maligned for its high prices, is now 
de rigeur among Gallic bargain-hunters. A year ago they would have 
shelled-out ?1.50 for a pound's worth of M&S underwear. Now, with the 
euro close to 90p, they only need ?1.11. Lower sterling and retailer 
discounting has made London a euro shoppers' paradise.

The Government pretends there isn't a problem, but the reality can't 
be denied, now that the all-powerful currency markets are concluding 
the US and UK are most exposed to the credit crunch.

But the pound has fallen against the euro for reasons way beyond our 
gummed-up credit markets. After the Brown-inspired debt-fuelled 
shopping frenzy of the last decade, the UK has a current account 
deficit equal to 4.2pc of GDP, compared to 0.2pc in the eurozone.

And for all his squabbling with German finance ministers, who speak 
the truth, our Prime Minister's "crass Keynesianism" has piled even 
more pressure on sterling. The Treasury now says the UK will borrow 
£118bn next year - three times the amount forecast in April. That's 
got to hurt the currency.

Sterling is also suffering because the Bank of England, having 
slashed rates from 5.5pc to 2pc since January, is now expected to go 
the whole hog and - with Brown throwing on the kerosene - set fire to 
our entire monetary regime by yanking rates down close to zero.

Ministers think they're being clever and a weaker currency will boost 
the UK, limiting the recession. French shoppers aside, this is folly.

For one thing, a weaker pound keeps inflation high via dearer imports 
- and the UK imports a lot - making us very vulnerable on that front. 
And even though sterling has fallen, exports orders remain weak. 
Competitive devaluations rarely work. But they have no chance of when 
the rest of the world is slowing too.

The pound isn't only down against the euro. Against the dollar, 
sterling has shed a quarter of its value since July. I say this with 
trepidation, but our currency could be "cut loose" by investors - 
sparking a hugely damaging plunge. And the more Brown goes on about 
"bail-outs" and rate cuts, the more chance that will happen.
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SHORTS! -
=Sunday Times - 14.12.08
Britain 'will not intervene to prop up pound'
The Treasury says it will not try to halt sterling's downward slide 
on currency markets, as parity with the euro nears

Pound's plunge is expected to limit cuts in UK interest rates
Sterling's fall could limit the Bank of England's scope for further 
aggressive cuts in interest rates

=The Sunday Express:
Britain's cash-strapped car industry needs £13bn to see it through 
the recession, union Unite is warning as the Government prepares an 
emergency rescue for the sector.

=The Observer:
The UK's leading supermarket chains are putting together emergency 
plans to deal with a possible collapse of their supply lines in 2009