The euro: In for a pound


    First Posted: 2/4/2013

    The flight of traders from sterling is happening not only because some of them feel there isn't much to be said for the United Kingdom economy, after recent bad growth figures.

    The movement from the pound is also for the more positive reason that the eurozone feels safer than last year. In 2012, sterling was a refuge from the euro; this year there is more confidence in the single currency.

    Investors too are moving toward equities. The buoyant state of the London stock market is hard to reconcile with a downbeat view of the economy. Nonetheless, the movement from sterling as a safe haven may be aggravated by the prospect that the Chancellor could exceed official borrowing forecasts this year. If the UK were to lose its triple-A credit rating, that would further undermine confidence.

    The dip in growth in the last quarter of last year may have been affected by one-off factors, especially in the oil sector, but there is still cause for concern about the health of the economy. The Office for National Statistics report on high levels of household debt is especially worrying. Families overstretched by debt repayments are in no position to spend.

    There are other concerns. Inflation has remained high in part as a result of quantitative easing. And rising costs depress demand — eating into salaries that are rising by far less than prices and leaving less for spending.

    London Evening Standard

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