UK News

Insights from the UK and beyond

from Hugo Dixon:

Independent Scotland won’t keep the pound

An independent Scotland will not keep the pound. That’s despite this being the express wish of the Scottish government, which is campaigning for independence in September’s referendum. The reason is that it’s hard to see the rest of the UK agreeing to such a deal – except on terms that would affront Scotland’s amour propre.

One can understand why Edinburgh is keen not to change its monetary arrangements. If Scotland had its own free-floating currency, it would be less economically integrated with the rest of the UK. Given that 60 percent of its exports and 70 percent of its imports are with the rest of the UK, such a separation would hit hard.

A separate currency would also cause trouble for the outsized Scottish banking sector. Banking assets are more than 12 times GDP – nearly double the ratio for Iceland, Ireland and Cyprus before their banking industries blew up. The Scottish people might also worry that a Scottish currency could fall in value, devaluing their savings.

Joining the euro might not be any better. Like a separate currency, the euro would complicate Scottish trade with the UK, and the euro zone might be unhappy with Scotland’s relatively gigantic banks. Added to that, the euro has suffered years of terrible publicity, so promising to join it wouldn’t be a vote-winner.

from Breakingviews:

Carney in doesn’t mean pound down as QE heads out

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Is Mark Carney really Mr. Easy Money, about to devalue the pound in a bid for growth? The incoming head of the Bank of England has spoken of the need to attain “escape velocity”. But the logical deduction - that he will open the monetary floodgates and send the pound down to $1.40 - ignores the latest economic news and the new international mood on monetary policy.

from The Great Debate UK:

Thanks, Greece

--Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.--

The euro zone crisis has been a piece of luck for Britain. Imagine what would have happened without it.

from The Great Debate UK:

Bank of England Inflation report offers markets a reality check

-Mark Bolsom is Head of the UK Trading Desk at Travelex Global Business Payments. The opinions expressed are his own.-

Sterling tumbled to a one week low against the dollar in trading this morning, after the Bank of England delivered its latest quarterly inflation and growth forecasts today.

from The Great Debate UK:

Sluggish U.S. economy may threaten UK business development

- Paddy Earnshaw is the Director of Customer Relations at Travelex Global Business Payments. The opinions expressed are his own.-

British importers and exporters’ confidence in the economy leapt in July, as positive economic data fuelled hopes for a return to strong economic growth. According to the Travelex Confidence Index (TCI), which jumped 12 points in July to 116, from 104 in June, strong gains were driven by quarter 2's GDP figure, as it showed the UK grew at its fastest pace in four years.

Tories could be making sterling a rod for their own back

Photo

BRITAIN-CONSERVATIVES/Talking down the pound could have some pretty bad consequences.

Ever since the debacle of sterling being forced out of the European exchange rate in September 1992, British officials and politicians have maintained a stiff upper lip when talking about the pound.

The Conservative government spent billions of pounds and jacked up interest rates to defend the currency back then, but to no avail. The party’s reputation for economic competence was lost, paving the way for Labour’s big win in 1997.

from The Great Debate UK:

Can inflation be controlled by raising interest rates?

MarkBolsom-150x150.jpg- Mark Bolsom is the Head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist. The opinions expressed are his own.-

One of the Bank of England’s Monetary Policy Committee members, Andrew Sentance, was quoted this morning suggesting that the Bank of England will need to consider raising interest rates this year if a “recovering economy poses a threat to inflation.”

from Global Investing:

Pity Poor Pound

Britain's pound has long been the whipping boy of notoriously fickle currency markets, but there are worrying signs that it's not just hedge funds and speculators who have lost faith in sterling. Reuters FX columnist Neal Kimberley neatly illustrated yesterday just how poor sentiment toward sterling in the dealing rooms has become and the graphic below (on the sharp buildup of speculative 'short' positsions seen in U.S. Commodity Futures Trading Commission data) shows how deeply that negative view has become entrenched.              

 While the pound's inexorable grind down to parity with the euro captures the popular headlines, the Bank of England's index of sterling against a trade-weighted basket of world currencies shows that weakness is pervasive. The index has lost more than a quarter of its value in little over two years -- by far the worst of the G4 (dollar, euro, sterling and yen) currencies over the financial crisis. The dollar's equivalent index has shed only about a third of the pound's losses since mid-2007, while the euro's has jumped about 10% and the yen's approximately 20% over that period.

from Davos Notebook:

London — warmer and cheaper

London is cheaper and warmer, at least compared with Davos, says London Mayor Boris Johnson.

"The fall in the pound is of huge value to London's exports and all sterling-denominated assets. We're seeing a very impressive effect here. We take advantage of the upside and the upside is that the pound is competitive," Johnson told Reuters.

from Global Investing:

Wish I hadn’t said that…

As sterling sinks to a 7-1/2 year low against the dollar, traders and investors are wondering who was the established political figure that made the following comments when Britain was kicked out of the Exchange Rate Mechanism in 1992.

"A weak currency arises from a weak economy which in turn is the result of a weak government."

  •