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A:gent W00

Will Hpc Weaken Sterling?

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It has been discussed on these forums, that the forthcoming slide/crash in UK house price will cause Sterling to weaken :blink:

I do not understand WHY the two have a correlation?

Why will the pound weaken as a result of falling house prices ?

Perhaps some more knowledgeable members could *enlighten* me please :unsure:

Thanks in advance

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I think mostly because people will spend less when their house prices are falling (less MEW, lower confidence). So less inflationary pressure, so lower interest rates needed to hit target. Lower interest rates make the currency less attractive so it falls.

See http://en.wikipedia.org/wiki/Interest_rate_parity

I think a lot of the fall is already priced in - inflationary pressures are back and the BoE has to target that. As the Chancellor reasserted last week.

Some people don't trust the inflation figures, but thats another matter... If you truly believe we are heading for high inflation then borrow as much as possible and buy the biggest house. Even with 50% falls you'll be up. Of course if we get deflation (people have less easy credit money, but same amount of stuff being made -> deflation) then owing people money would be bad...

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Why will the pound weaken as a result of falling house prices ?

Two things at least that I can see:

HPC -> temptation (need) to lower interest rates -> less willingness to hold sterling

HPC -> economic downturn -> worsening government balance sheet (lower tax receipts, higher government spending).

More simplistically, HPI has been a major engine of the UK plc, switch the engine off and the share price is bound to decline...

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So, am I correct to think that :

Falling house prices = less consumer spending = slowing economy ...........

And therefore, in order to "kick start" economy lower interest rates would result in devaluation for £GB??

So where is the "hyper inflation" everyone is talking about...........

Afterall the remit of BOE is to contain inflation and lowering of interest rates encourages inflation!

Confused now I am :ph34r:

omg it looks like it is "Stalgflation" ngek

ay naku

Edited by A:gent W00

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So, am I correct to think that :

Falling house prices = less consumer spending = slowing economy ...........

And therefore, in order to "kick start" economy lower interest rates would devalue the pound?

So where is the "hyper inflation" everyone is talking about...........

Afterall the remit of BOE is to contain inflation and lowering of rates does the opposite !

Confused now I am :ph34r:

Lower interest rates will certainly devalue the pound, making imports and energy more expensive, though whether they can succeed in kick-starting the economy is open to debate. I don't think the BoE will be able to contain inflation (and the governor has indicated that he expects to be writing more letters in the coming months, has he not?) Interest rates are not a silver bullet for keeping the currency strong; at some point the economic pain of high rates becomes politically unsustainable and the markets sense that the game is over, just as we saw in 1992.

Hyperinflation, if it comes to that, will arrive indirectly from the bail-out of the banking sector, not directly from falling house prices or economic slowdown ... the idea being to devalue the pound until houses really are worth the nominal valuations that have been placed on them, so that the banks' books balance again (and ordinary savers holding sterling will have been destroyed).

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GBP is also being distorted by UK banks (those that can) borrowing EUR at the ECB and converting back into GBP.

GBP is going down against the EUR over the next 12 months in my view.

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I think that the reason for any sterling crash is the fact the world has found out that the UK has nothing to offer. UK plc makes nothing (well some small amounts of high end engineering and electronics) that is worth buying. Houses have **** all to do with the GDP and its about time the political heads of all parties realised this. Engineering and Sciences will build our economy and nothing else. If we rely on sales at top shop for our economy then the uk is truly procreated with.

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  • 293 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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