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Realistbear

Telegraph: U K Needs Higher I R And A Lower Pound

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http://www.telegraph.co.uk/money/main.jhtm.../09/ixcoms.html

Filed: 09/04/2006

The shift may already have started. Over the past month, the pound has fallen by 3 per cent against the euro and on its effective index it is at a three-year low. Still, as the main chart shows, this is peanuts in relation to the rise that occurred in 1997/8 and is well within the periodic fluctuations since then. There has to be something new to push it markedly lower.
Changes in relative growth prospects and relative interest rates are already pointing in this direction. UK interest rates were recently extremely high by world standards but US rates are now just above UK rates and will almost certainly soon move higher. Euro-zone rates have been well below sterling rates but have risen by 0.5 per cent since December and
may rise by a further 1 per cent
before long, thereby narrowing the interest differential to only 1 per cent.

Solution: higher IR and a devaluation of sterling.

As things stand a drop in IR will crash the pound and ignite inflation beyond the already unacceptable levels. If the rates are raised the pound becomes overvalued stifling the economy even further. So what better solution than an ordered devaluation coupled with an IR increase? :)

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Guest wrongmove

As things stand a drop in IR will crash the pound and ignite inflation beyond the already unacceptable levels. If the rates are raised the pound becomes overvalued stifling the economy even further. So what better solution than an ordered devaluation coupled with an IR increase? :)

Err.... leave rates where they are ? :unsure:

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Err.... leave rates where they are ? :unsure:

Something Gordon would love to do to keep HPI/MEW moving along--the problem is that the world around us does not stand still. If he stands still on rates we get left behind and the pound tanks slightly less than if we drop rates. IMO the world is starting to see through Gordon's "Miracle Economy" and without NS Oil backing us up there are only high house prices left to try to convince the world that everything is tickety boo.

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So what better solution than an ordered devaluation coupled with an IR increase? :)

But we have a floating currency. Neither the government or the BoE have any control over the exchange rate OTHER than through interest rate policy, and the prevailing influence there is that an IR increase would strengthen the pound. So it's difficult to engineer such a scenario.

Of course, if the pound continues to weaken for other reasons and the BoE reacts to the inflationary pressures that brings, raising rates, then such a scenario is more than plausible.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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