Sterling's Big Slide May Not Be Over Yet

[alexw]

http://www.thisismoney.co.uk/news/columnis...=moretopstories

Sterling's big slide may not be over yet

18 March 2008

The decline of the dollar has become so much a part of the daily news we barely notice it amid the general mayhem. But it is worth a closer glance.

Sheltering behind the dollar is another troubled currency, the pound, and the fall in sterling, though largely unnoticed by the man in the street, is in many ways as dramatic as anything that is happening to the dollar.

The reason sterling's weakness has passed a lot of people by is that the benchmark for most observers is the rate against the dollar - and that, of course, is about the only currency in the world (with the possible exception of the money used in Iceland) where the performance of the pound looks strong. Against almost every other currency of consequence, it looks seriously sick.

Since the rot set in last autumn, the pound has dropped by getting on for 12% against the euro. Its trade-weighted fall, which measures its value against a basket of the currencies of the countries with which we do business, is down by a similar amount.

To put that in perspective, it is the biggest fall for 15 years, the last time being when sterling was ejected from the Exchange Rate Mechanism way back in Norman Lamont's time as Chancellor of the Exchequer - or, to give it a more contemporary feel, in David Cameron's time as aide to Lamont.

When people head off this weekend for a bit of end-of-season skiing over Easter, they will find an unnerving jump in the cost of that French kir or Austrian gl¸hwein - and the ski passes for that matter. Only in Disneyland will the pound buy as much, and there is probably a moral there somewhere.

It is also weak against the currencies of Asia, however much they try to manipulate things the other way. That means, after a decade in which imports from China seem always to have been getting cheaper, the machine will go into reverse.

A lot of basic goods and clothes will get more expensive. So too will imported foods, which will be particularly hurtful as we are already in the throes of worldwide food and commodity inflation caused by additional demand from the fast-growing and increasingly wealthy Asian nations. A falling pound adds a further layer of pain.

The question now is whether the worst of the fall is over, or might there be more to come. Economists say that in terms of purchasing power - comparative studies by the likes of the OECD, or indeed the Economist's Big Mac index, which relates everything to the cost of a burger - a fall of 15% would be quite far enough.

But there is a dissenting view that says the pound ought to drop until UK exports become competitive again. On this measure, there is still some way to go because in all the years under Labour, productivity has barely improved. The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997. On that basis, the pound has a lot further to fall.

edited to add link

Edited March 24, 2008 by alexw

[patprimer74]

But there is a dissenting view that says the pound ought to drop until UK exports become competitive again. On this measure, there is still some way to go because in all the years under Labour, productivity has barely improved. The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997. On that basis, the pound has a lot further to fall.

So, do you want a stronger or weaker pound? You don't tell us. Perhaps you don't know, yourself?

p

[South Lorne]

....contributing to the fall has been the sentiment within the MPC to reduce interest rates to counteract the effects of the bubble burst and credit crunch ....in Euroland there is a strong feeling led by the Germans for staying still or going up... although there is also a view the Euro may need to come down by April / May...they have Banks suffering also....the UK sentiment has been factored in to the current rate trend.....

[why me]

So, do you want a stronger or weaker pound? You don't tell us. Perhaps you don't know, yourself?

p

WEY HEY PATTY P IS BACK!!! Someone to whip again!!!!!

I want a weak pound as I am earning euros.

Edited March 24, 2008 by humanoid76

[alexw]

So, do you want a stronger or weaker pound? You don't tell us. Perhaps you don't know, yourself?

p

Neither, i'd much rather have increased productivity.

[South Lorne]

Neither, i'd much rather have increased productivity.

...the current ethos in this country does not lean that way....

Edited March 24, 2008 by South Lorne

[alexw]

...the current ethos in this country does not lean that way....

yep, why increase productivity and spend on training, when you can cut relative wages and import cheap labour. IMO its why we are up shit creek and paddling with our hands.

[winkie]

So, do you want a stronger or weaker pound? You don't tell us. Perhaps you don't know, yourself?

p

Missed the boat and a chance of a cheap euro.

[OnlyMe]

The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997.

Bravo, bravo. cretins.

About time people realised that these people have wrecked the country through financial policy. Longest working hours in Europe, low investment, high speculation and debt.

Now to save their own skins they want to wreck the value of earnings (of which people have little excess) and trash the currency and savings with it.

Edited March 24, 2008 by OnlyMe

[South Lorne]

The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997.

Bravo, bravo. cretins.

About time people realised that these people have wrecked the country through financial policy. Longest working hours in Europe, low investment, high speculation and debt.

Now to save their own skins they want to wreck the value of earnings (of which people have little excess) and trash the currency and savings with it.

....'No more boom and bust' - Gordo said.....what did he do....forgot to walk the talk....

[Ah-so]

Good news for exporters, on the other hand

[huw]

So, do you want a stronger or weaker pound?

We need a weaker pound and fiddled inflation figures, that's the only way that UK plc is going to take the pay-cut needed to start living within its means.

[yawnIHateSundays]

But there is a dissenting view that says the pound ought to drop until UK exports become competitive again. On this measure, there is still some way to go because in all the years under Labour, productivity has barely improved. The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997. On that basis, the pound has a lot further to fall.

What, you mean all those City boys who are generating a big chunk of this country's GDP are really a bunch of overpaid slackers?

[Wayo]

The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997.

Bravo, bravo. cretins.

About time people realised that these people have wrecked the country through financial policy. Longest working hours in Europe, low investment, high speculation and debt.

Now to save their own skins they want to wreck the value of earnings (of which people have little excess) and trash the currency and savings with it.

There was some report a little while ago that mentioned our high structural inflation. Trouble is that almost anything not imported or hedonically adjusted, and especially anything involving UK labour had rocketed in price in recent years. In fact the only area where we are now competitive is our unrivalled ability to put the prices up. Productivity? There is less work going on, and people are getting paid more for it. Shops that can't be bothered opening at weekends because it inteferes with their proprietor's social arrangements. 35hr weeks.

You want an engineer to repair your BT line? £170 per visit. That's a weeks net pay for a lot of people.

Post / Packing? Even for the smallest, low value consignment that can easily top £5. Letting angency credit checks? £100+ A few rounds of bowling with work came to nearly £13 per person the other week. And don't get me started on cafe culture!

If rents do finally start to take off because of higher IR and people unable to get mortgages, even the official measures will go stratospheric.

Unlike the US we now have very little export manufacturing to fall back on now the £ is tanking, so its inflation all the way.

I bet the ex-pats are noticing their UK denominated pensions are worth less!

[oracle]

The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997.

Bravo, bravo. cretins.

About time people realised that these people have wrecked the country through financial policy. Longest working hours in Europe, low investment, high speculation and debt.

Yeah,but look how it's come about.

We have an army of personal injury lawyers,social services and public sector quangos,Health and safety,smoking police and totally unneccessary jobs.No bloody wonder businesses want to reduce their costs by hiring foreigners on temporary contracts.

It's not just a matter of working longer hours for less money,but fostering an environment conducive to people cooperating.

What we have now is feudalism,and its destroying the country.

[winkie]

Provide a bloody good service....but produce nothing to back it up.

[Guest grumpy-old-man]

The IMF says the UK's relative labour costs are now almost 25% higher than they were when the Bank of England became independent in 1997.

Bravo, bravo. cretins.

About time people realised that these people have wrecked the country through financial policy. Longest working hours in Europe, low investment, high speculation and debt.

Yeah,but look how it's come about.

We have an army of personal injury lawyers,social services and public sector quangos,Health and safety,smoking police and totally unneccessary jobs.No bloody wonder businesses want to reduce their costs by hiring foreigners on temporary contracts.

It's not just a matter of working longer hours for less money,but fostering an environment conducive to people cooperating.

What we have now is feudalism,and its destroying the country.

we can see it, why can't the majority then ?

wages have not moved since 2000 imo & yet living costs have soared.........& yet the idiots think they are better off because their houses have gone up in virtual value.

Edited March 24, 2008 by grumpy-old-man

[thirdwave]

Good news for exporters, on the other hand

Well, VAT carousel fraud accounts for a substantial percentage (can`t remember how much) of UK's 'exports'. I don`t think there are many major exporters, except perhaphs those chaps in Flintshire who make aircraft wings, who would benefit from a weaker pound..

[redgenieuk]

Good news for exporters, on the other hand

Oh yes.

I export, 15% would be excellent. 25% would be better than pretty much better than winning the lottery.

[redgenieuk]

Oh yes.

I export, 15% would be excellent. 25% would be better than pretty much better than winning the lottery.

For most part, most UK exports are priced in USD or EUR. So we need 15% off the USD rate, now the EURO is almost there.

[Nickolarge]

My mother gets over half her pension from the States and when they started slashing their interest rates I expected her to be taking a pay cut. Normally when the rates of two countries move apart the currencies move in sympathy as the one with higher rates becomes more attractive to currency speculators. My mum has been getting this pension for over 15 years and this has generally been the case during that time. This time the Pound seems to have stuck with the Dollar, give or take a few pence.

[Nicolaj]

we can see it, why can't the majority then ?

wages have not moved since 2000 imo & yet living costs have soared.........& yet the idiots think they are better off because their houses have gone up in virtual value

I know quite a few ppl living off credit cards, ...they will have to face reality sooner or later...maybe when jobs start disappearing.

think they've been playing too much "second life"