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Realistbear

Sterling Under Pressure On Deficit News

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http://uk.biz.yahoo.com/11072006/94/sterli...-trade-gap.html

uesday July 11, 02:31 PM

Sterling falls on widening trade gap

Sterling fell in European morning trade on Tuesday after the UK’s trade deficit unexpectedly widened to £4.4bn in May, from £3.4bn in April.
The deterioration, driven by a worsening in the deficit in trade for goods from £5.57bn to £6.75bn, cast doubts over the extent of any rebalancing of the UK economy away from the consumer sector, as well as hopes that net trade may begin to contribute to GDP growth.
At the margin, this was likely to damp down talk of UK rate rises, weakening sterling in the process.
“This report is a surprise that will undermine sterling and also the Bank of England’s expectation that the economy will be supported by a rebalancing of growth away from consumption towards exports,” said Daragh Maher, senior FX strategist at Calyon.

I have to diagree that falling sterling will require a cut in IR. In fact, the opposite as a falling pound will add to inflation, especially as we are now a net importer. Gord, what HAVE you done? :o

IMO sterling is key. See it drop and IR rise and hello HPC with a vengeance.

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The deterioration, driven by a worsening in the deficit in trade for goods from £5.57bn to £6.75bn, cast doubts over the extent of any rebalancing of the UK economy away from the consumer sector, as well as hopes that net trade may begin to contribute to GDP growth

What rebalancing?

What breed of idiot thinks that the trade deficit will correct itself under the current circumstances? HELLO consumers (house consumers) are borrowing to the tune of £100bn a year to keep this pathetic economic policy afloat. All the while all this trash debt is exacerbating the problem, increasing housing costs, increasing building costs, increasing land costs. Manufacturing cannot fight competitive foreign countries and a monetary policy hell bent on ignoring inflation and printing money. Simple as that.

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If I had a pound for everytime the phrase 'run on the pound' was used on this site, I'd be able to afford a property portfolio 10 times bigger than TTRTR and buy more gold than cgnao.

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What rebalancing?

This is written as if 'rebalancing' is a stated policy that we should all be aware of already.

I feel that the media are being primed - Brown is a far bigger spinner and liar than Blair.

This new talk of the UK economy "needing rebalancing" is Brownspeak for lower Sterling to boost an "export led recovery" - ie rate cuts, which will feed inflation which will be sqirrelled away in misleading ONS stats

I had a feeling a while ago the Brown will inflate away debt. If we see this angle appearing in the media, BBC esp, then it looks like this will be next stage of Browns 'Miracle'. Some economist on Bloomberg this morning wittered on about "we're over the 'inflation scare'"

All will become clearer September/October time, when the sh*t's really hitting the fan with Japans IR rises, and Fed's dithering in face of inflation/recession.

If it's hyper-inflation time, I'm going to max out on mortgage debt

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This is written as if 'rebalancing' is a stated policy that we should all be aware of already.

I feel that the media are being primed - Brown is a far bigger spinner and liar than Blair.

This new talk of the UK economy "needing rebalancing" is Brownspeak for lower Sterling to boost an "export led recovery" - ie rate cuts, which will feed inflation which will be sqirrelled away in misleading ONS stats

I had a feeling a while ago the Brown will inflate away debt. If we see this angle appearing in the media, BBC esp, then it looks like this will be next stage of Browns 'Miracle'. Some economist on Bloomberg this morning wittered on about "we're over the 'inflation scare'"

All will become clearer September/October time, when the sh*t's really hitting the fan with Japans IR rises, and Fed's dithering in face of inflation/recession.

If it's hyper-inflation time, I'm going to max out on mortgage debt

The ONS are good at hiding inflation but not good enough to hide hyper, go and mortgage yourself to the hilt hoping it will be eroded by hyper inflatin.. but remember to keep up the repayments.

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Another point is that increasing energy costs are driving this too. Not only are we a weak exporter but we don't even produce enough oil and gas to feed ourselves any more. So it must be bought in, at ever greater costs. The double whammy is that the sharp decline in North Sea oil is piling on top of relentless increases in the oil price. I foresee no relief to those trends.

Either they raise interest rates and squeeze the economy, or they let the pound fall and with it living standards, risk inflation, but improve productivity and inflate debt away. Or, they could join the Euro, if they'd let us in with our balance sheet.

It looks like falling pound, inflation and lower real living standards. Everybody is happy except savers, and we are in the minority, and if we have any sense we have our savings in PM and CHFr where they are out of harm's way, so we are happy too. Householders get their mortgages paid off by inflation, there is no nominal HPC, the CBI will love the lower labour costs and imports will fall.

Why should they do anything else? Look, if you had no spine, no guts, no moral fibre and your liver was the colour of Advocat, what would you do?

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Read this on Bloomberg the other day.

The pound is attractive in part because of Prime Minister Tony Blair's success in slowing inflation and spurring growth. Consumer price gains have averaged 1.4 percent since May 1997, when Blair took office. The inflation rate averaged 4 percent in the five previous years. Economic growth of 2.3 percent in the first quarter was faster than the average for the 12 nations sharing the euro.

Higher interest rates in the U.K. have made the pound attractive to some industrialized countries. The Bank of England's benchmark rate is 4.5 percent, compared with the European Central Bank's 2.75 percent.

Edited by gordonbrown

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If I had a pound for everytime the phrase 'run on the pound' was used on this site, I'd be able to afford a property portfolio 10 times bigger than TTRTR and buy more gold than cgnao.

If I had a pound for everytime the phrase 'run on the pound' was used on this site, I'd be able to single-handedly do what George Soros and his buddies did to the pound last time! :lol:

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Higher interest rates in the U.K. have made the pound attractive to some industrialized countries. The Bank of England's benchmark rate is 4.5 percent, compared with the European Central Bank's 2.75 percent.

I think we tend to forget this fact - yes we have low IR compared to the USA, but not Germany, France, Italy, Spain . . .

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Well put your money where your mouth is - buy sterling! Sterling is ready to go......interest rates rising elsewhere, economic already ordinary to sluggish and will deteriorate going into winter as comps toughen, political drift will continue and possibly worsen, north v south tensions will rise (house price falls up north will be major issue in 2007 - there is no earnings growth and government spending now cooling - and where do all those labour MPs come from)........this is BOE's greatest fear and hence their constant PR "the UK is strong" (confidence, especially international confidence is everything) and as realistbear pointed out Sterling will be the catalyst to trigger more serious problems - it would be highly inflationary, leading to rising interest rate slowing growth and real pain. It will happen as it has happened every generation since the war....

I believe by next summer, sterling will be €0.80, $1.65 and Y160.....and by 2008 probably significantly lower than that once momentum gained in currency markets for selling Sterling. And solutions...BOE cant cut interest rates (any cut would worsen Sterling's slide), the government is already borrowing heavily at top of the cycle, the consumer is straitjacked with debt with no firepower, exporters dont exist (look at todays figures).. INTERNATIONAL PERCEPTION OF UK AS SAFE HAVEN WILL BE CONSIGNED TO HISTORY BY CHRISTMAS 2007....currency markets take time, you just need patience (yes I am losing money)!

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If it's hyper-inflation time, I'm going to max out on mortgage debt

You had better make sure it is fixed interest debt.

I can't see this hyper inflation scenario - or even moderate inflation scenario.

Wage demands in this country are well suppressed on the whole. In years gone by we could live with higher inflation because other economies had it too and we still sold things the rest of the world wanted. To perform the same trick now would mean we would have inflation in the domestic economy and, the only way we could maintain exports is if the value of Sterling fell against other countries. As higher interest rates are used to control inflation, the two are mutually exclusive.

Edited by Marina

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It looks like falling pound, inflation and lower real living standards. Everybody is happy except savers, and we are in the minority, and if we have any sense we have our savings in PM and CHFr where they are out of harm's way, so we are happy too. Householders get their mortgages paid off by inflation, there is no nominal HPC, the CBI will love the lower labour costs and imports will fall.

I know it's been said before, but it's WAGE inflation that pays off mortgages, NOT price inflation. So there's a contradiction in here - you can't have lower labour costs (ie lower wages, in real terms) and inflation eroding mortgage debt.

Of course this is where it gets interestingly messy. How can Gordon inflate the problems away, when any attempts to bid up wages will meet with cheaper imports from abroad or reduced costs from foreign workers coming here and bidding down wages? If you're thinking of mortgaging yourself to the hilt because Gordon is going to inflate the debt away, ask yourself this - how on earth is he going to engineer massive wage inflation - ie real growth in incomes compared to living costs, including housing costs - when cheap imports or cheap imported labour are waiting to undercut us?

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I know it's been said before, but it's WAGE inflation that pays off mortgages, NOT price inflation. So there's a contradiction in here - you can't have lower labour costs (ie lower wages, in real terms) and inflation eroding mortgage debt.

Of course this is where it gets interestingly messy. How can Gordon inflate the problems away, when any attempts to bid up wages will meet with cheaper imports from abroad or reduced costs from foreign workers coming here and bidding down wages? If you're thinking of mortgaging yourself to the hilt because Gordon is going to inflate the debt away, ask yourself this - how on earth is he going to engineer massive wage inflation - ie real growth in incomes compared to living costs, including housing costs - when cheap imports or cheap imported labour are waiting to undercut us?

Munro, yes interesting points. I am not sure, the only way out appears to be a general fall in (real and possibly nominal)living standards via a slump in Sterling. This would make UK less attractive to economic immigration, so there would be exodus to better prospects, allowing some wage inflation here.

Or there may be no way out barring a banking crisis that leaves the economy looking like it got run through by a train. There is so much debt and so little real economic activity with which to pay it off.

Maybe Britain will just sink into perennial slugging it out to pay off the debt over the next 20 years, its people resigned to tired, dreary existence in financial hangover land.

The funny thing is, a friend of mine was at a business school some years ago and still gets an alumni mag every so often. In the last issue there was a long attack on the German economy for being too bureaucratic and having the unions too powerful, having no low-wage sectors and so forth, yet no mention that Germany is largely debt free and the greatest exporter in the world. These MBA types are supposed to be the aristocracy of the new global stock market culture. They appear to be completely oblivious to the falsity of the "great success" of Britain and the USA, all debt-blown, versus the solid, steady work of a nation like Germany. The Germans have kept their working conditions protected AND they lead the world in manufacturing. By comparison, the UK and the USA treat their workers as little better than inanimate inventory. They have lost their manufacturing cores and are poisoning themselves to death with debt. They are doomed economies - and the bright sparks at the top still chant praises to their religion of "flexible labour markets".

It scares you doesn't it? Maybe this disaster is happening because the folk who are in control are so saturated in their faith that they have lost any critical ability to see warning signs. They aren't going to save themselves or anybody else, because they don't appear to understand the danger.

Edited by malco

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If you're thinking of mortgaging yourself to the hilt because Gordon is going to inflate the debt away, ask yourself this - how on earth is he going to engineer massive wage inflation - ?

By employing ever more people in the public sector, or in private industries, that are dependent on public sector for business

Though Brown can spout on at this bi-annual lectures about constraining public sector pay rises, they are rocketing, and businesses that get public sector contracts can very easily up their prices

I know, I put my prices up to public sector clients [im an IT consultant] 2 yrs ago by 100% overnight, with no comment or loss of business, in fact I got more business, as the more you charge, the better value they think they are getting

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Another point is that increasing energy costs are driving this too. Not only are we a weak exporter but we don't even produce enough oil and gas to feed ourselves any more. So it must be bought in, at ever greater costs. The double whammy is that the sharp decline in North Sea oil is piling on top of relentless increases in the oil price. I foresee no relief to those trends.

Either they raise interest rates and squeeze the economy, or they let the pound fall and with it living standards, risk inflation, but improve productivity and inflate debt away. Or, they could join the Euro, if they'd let us in with our balance sheet.

It looks like falling pound, inflation and lower real living standards. Everybody is happy except savers, and we are in the minority, and if we have any sense we have our savings in PM and CHFr where they are out of harm's way, so we are happy too. Householders get their mortgages paid off by inflation, there is no nominal HPC, the CBI will love the lower labour costs and imports will fall.

Why should they do anything else? Look, if you had no spine, no guts, no moral fibre and your liver was the colour of Advocat, what would you do?

All of my 'wealth' is money in the bank so stuff like this concerns me. What is PM and CHFr?

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The funny thing is, a friend of mine was at a business school some years ago and still gets an alumni mag every so often. In the last issue there was a long attack on the German economy for being too bureaucratic and having the unions too powerful, having no low-wage sectors and so forth, yet no mention that Germany is largely debt free and the greatest exporter in the world. These MBA types are supposed to be the aristocracy of the new global stock market culture. They appear to be completely oblivious to the falsity of the "great success" of Britain and the USA, all debt-blown, versus the solid, steady work of a nation like Germany. The Germans have kept their working conditions protected AND they lead the world in manufacturing. By comparison, the UK and the USA treat their workers as little better than inanimate inventory. They have lost their manufacturing cores and are poisoning themselves to death with debt. They are doomed economies - and the bright sparks at the top still chant praises to their religion of "flexible labour markets".

The reason MBAs champion the UK/USA model is because it has seen massive rewards for senior management of corporations in these countries (paid huge multiples of German equivalents). They are purely concerned with themselves.

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All of my 'wealth' is money in the bank so stuff like this concerns me. What is PM and CHFr?

I think they would be 'precious metals' (gold, silver) and 'Swiss Francs'.

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In the Krugman's paper "Will be a dollar crisis?" I've read, that to reduce trade deficit for 1% of GDP an 20% reduction of value of currency is needed. So, if the UK is running now trade deficit euqal to 5-6% of GDP, the pound should became really cheap...

Edited by Assurbanipal

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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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