Saturday, December 29, 2007

Another alleged “pillar” is about to disappear?

Border Controls Vanish in Eastern Europe

I was never convinced that immigrants were as important for BTL as suggested (many Britons have been leaving as well, this group could not afford to buy and most live many in one house) BUT it was nevertheless another factor. As most are economic migrants, many will go other parts of Europe now. I am sure many like London and English is an important country, HOWEVER, our economy is slowing to EU levels, Europe proper is closer AND the UK pound is weakening against e.g. the Polish zloty (this means it is better to work where payment is in a stronger currency (the Euro)). Another link giving details on the time line... Many forces come together in April (capital gains tax triggers BTL sales?).

Posted by new user 2007 @ 05:25 PM (817 views)
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2 thoughts on “Another alleged “pillar” is about to disappear?

  • The Euro has been dropping all week. The UK are sure to cut IRs in January, again. The Friday morning commentary by Reuters (Currency) is already out of date. The £ is at an all time low. Every time some pundit suggests the IR goes down to 4.75% by Autumn, the Euro exchange rate drops a bit more….

    Dearer German lager and French cheese, I’m afraid.

    IMO, if the US Fed drops IRs at the end of January we are sure to follow suit. The question will then be whether Trichet can keep his nerve in early February. As the US are experiencing sub-prime mortgage rate increases in December, expect them to filter through as foreclosures in March, giving UK finance job cuts in April.

    But, maybe the immigrants DON’T pack their bags and go home, perhaps they do the Brits work while the Brits take their “benefits”?

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  • Our current account deficit is higher than the Eurozone, interest rate differentials will actually go in favour of the Euro relative to the pound if we cut by more than them (can’t have it both ways…either our interest rates will plummet next year and we will have a much weaker pound i.e the pound will fall gainst the Euro and Polish zloty, OR interest rates here will stay up and house prices here will suffer because of that).

    The X-factor is inflation. We are a bit odd saying inflation is under control when it is rising sharply almost everywhere else (even China)…does this mean our basket is VERY suspect? The ECB has a stronger commitment to fighting inflation (a legacy of the Bundesbank) so they are less likely to cut rates than we are. Indeed, it has stuck to fighting inflation for years, while the Fed and BoE have focussed on raising asset prices. I think all of them will have problems reducing rates next year because of inflation.

    Not sure what the Euro has been dropping against in terms of which basket and which individual currencies relative to what the pound is doing. And over and under valuation depends on what it is being measured against i.e. I am not sure what it is dropping against and from what two time periods points is being compared…a structrual strengthening of the Euro over 2 years is clearly there, regardless of short run cyclical movements.

    Moreover, I am not sure what definition of the pound being undervalued…it is at an all time low against the US dollar perhaps, but not on a trade weighted basis i.e. the value that actually counts. If German lager and French cheese are dearer (for us I assume?) that actually reinforces the point that the pound is weakening (that in itself does, however, make a cut in UK rates harder as import inflation worsens) and that the Euro is the currency the Eastern Europeans will want to be paid in.

    There is a natural level of returns i.e. people who planned to work here temporarily regardless of broader econoic issues. All that has to happen is that this group returns and is not replaced (because people can now go to the rest of Europe). When sending money home an economic migrant, I assume, looks at the cost of living, ease of getting there, language, employment and salary (this is where the currency impact is key) and access. The Eurozone now looks like a good alternative on balance for many, wherease for the last 7 years that option was not there legally.

    Meanwhile, the worse the UK economy gets, the more likely it is that the exodus of Britons that has been evident for a while at least continues.

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