Pound sterling could be the next victim of the global economic crisis says HSBC
Published on Selasa, 12 Maret 2013
23.31 //
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The pound sterling could slump this year as the problems of other
currencies recede and refocus attention on problems like Britain’s
persistent trade deficit and huge debts, according to HSBC.
‘The pound looks set to lose the contest of the uglies as its frailties emerge from the shadows,’ concludes HSBC. The bank expects sterling to lose about five per cent of its value against the US dollar and end the year around $1.50.
No safe haven
Sterling has benefited from safe haven status in the financial storms of the past couple of years and basked in the supposed benefited of independence from the euro. It looks as if the tables are about to turn.
As ECB president Mario Draghi pointed out at the start of the year the economic fundamentals of the eurozone do stand out as far sounder than most of the rest of the world. To that extent austerity is working, though it is not working for the millions of unemployed, particularly in southern Europe.
A cheaper pound might help exports but the cost will come in higher domestic inflation. This will gradually erode the real burden of debt carried by the UK economy but then again interest rates will also rise so the cost of carrying this debt will go up and not down.
With so many UK consumers dependent on low mortgage rates this would be a disaster for many domestic households. Higher interest rates would therefore tend to depress UK house prices that have been resilient in the face of the global economic crisis thanks to record low mortgage rates.
The economy shrank by 0.1pc in the three months to February, the National
Institute of Economic and Social Research (NIESR) estimated, which followed
a 0.3pc decline in the final quarter of last year. If figures show the
economy contracted in the three months to March, the UK will officially be
declared to be suffering its third recession since the financial crisis of
2008.
NIESR’s monthly GDP estimate was a slight improvement on the three months to
January, which showed the economy declined by 0.2pc. However, it added that
the data “suggest that the economy continued to flat-line in the first two
months of this year”.
The bleak outlook followed official figures showing that output in the
production industries, including manufacturing, shrank far more sharply than
expected in January.
A slight improvement in the balance of trade for the month, published
separately, provided little solace following the 1.2pc decline in industrial
production between December and January, according to the Office for
National Statistics. It was the weakest reading since September. Economists
had expected expansion of 0.1pc.
The pound fell to $1.4832 at one point, the lowest level since June 2010
(Graph: Bloomberg)
Although the decline was once again caused largely by North Sea oil platform shutdowns, the UK’s manufacturing sector also disappointed. Following a 1.6pc increase in December, the sector – which remains the country’s largest single industry – declined by 1.5pc.
“This is the penultimate nail in the coffin in terms of triple-dip - it’s pretty much game over now,” said Alan Clarke, economist at Scotiabank. “Unless we have a stellar performance from the services sector, we’re almost certainly in a triple dip.”
The pound fell sharply against the dollar, touching $1.4832 at one point, the lowest level since June 2010.
The trade figures were a little better than hoped, with the deficit in goods and services in January shrinking slightly from £2.8bn in December to £2.4bn in January. The goods deficit, which some had feared would expand from £8.9bn to £9bn, shrank to £8.2bn.
The improvement was not driven by an increase in exports over the latest three months, but by a 2pc decline in imports. In fact, non-oil exports fell 5.4pc in the month, the worst decline since April 2012.
“This is suggestive of headwinds to UK economic activity, and could be consistent with further policy easing,” Steven Bryce, Credit Suisse economist, said.
He added about the industrial production figures: “This number more-or-less reverses the strong December reading, and leaves the first quarter GDP print potentially looking weak.”
Although the decline was once again caused largely by North Sea oil platform shutdowns, the UK’s manufacturing sector also disappointed. Following a 1.6pc increase in December, the sector – which remains the country’s largest single industry – declined by 1.5pc.
“This is the penultimate nail in the coffin in terms of triple-dip - it’s pretty much game over now,” said Alan Clarke, economist at Scotiabank. “Unless we have a stellar performance from the services sector, we’re almost certainly in a triple dip.”
The pound fell sharply against the dollar, touching $1.4832 at one point, the lowest level since June 2010.
The trade figures were a little better than hoped, with the deficit in goods and services in January shrinking slightly from £2.8bn in December to £2.4bn in January. The goods deficit, which some had feared would expand from £8.9bn to £9bn, shrank to £8.2bn.
The improvement was not driven by an increase in exports over the latest three months, but by a 2pc decline in imports. In fact, non-oil exports fell 5.4pc in the month, the worst decline since April 2012.
“This is suggestive of headwinds to UK economic activity, and could be consistent with further policy easing,” Steven Bryce, Credit Suisse economist, said.
He added about the industrial production figures: “This number more-or-less reverses the strong December reading, and leaves the first quarter GDP print potentially looking weak.”
Europhobia backfires
Does this mean the UK is going to suffer its own version of the crisis afflicting the peripheral states of the European Union with its independent currency backfiring badly? It could be that yet again the Europeans have the last laugh and the europhobic Britons end up paying for not being a full member of the club.
Certainly if you took Mario Draghi’s list of economic fundamentals that are sound in the eurozone, most of them would not apply to the United Kingdom. Currency devaluation might bring some relief but it is no cure all.
Here comes the day of reckoning for the UK!
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