Is the fall in sterling good for the UK?

asdasd · 15-12-2008 05:05PM #1

Personally I think it is. In fact I think that floating currencies are a good thing. It is depressing how cheap the UK is compared to Ireland on the basis of the current exchange rate ( which I know undervalues the pound). On £1 = 1.5 E* I could go to the UK and get a £3 lager and think it merely a bit cheaper than Ireland.

Now is is about 3.30 E. Wages have similarly fallen in price. That gets them a competitive advantage over us, over much of Europe. And the fall in sterling means that wages fall across the board i.e. public and private sector, and profits fall and rent falls. Everybody suffers. Not that the suffering is too much, inflation is not going to rise next year in the UK.

Good idea, that. A separate currency.

* E = Euro. Cant find the symbol in this keyboard.

getz · 15-12-2008 05:12PM

asdasd wrote: »

Personally I think it is. In fact I think that floating currencies are a good thing. It is depressing how cheap the UK is compared to Ireland on the basis of the current exchange rate ( which I know undervalues the pound). On £1 = 1.5 E* I could go to the UK and get a £3 lager and think it merely a bit cheaper than Ireland.

Now is is about 3.30 E. Wages have similarly fallen in price. That gets them a competitive advantage over us, over much of Europe. And the fall in sterling means that wages fall across the board i.e. public and private sector, and profits fall and rent falls. Everybody suffers. Not that the suffering is too much, inflation is not going to rise next year in the UK.

Good idea, that. A separate currency.

* E = Euro. Cant find the symbol in this keyboard.

its very bad for ireland- most of there exports go to the uk , and it is far too costly to send it to europe anyway, the french have that market

stevedublin · 15-12-2008 05:16PM

asdasd wrote: »

* E = Euro. Cant find the symbol in this keyboard.

to get €, try pressing "Alt Gr" and "4" at the same time.

KevR · 15-12-2008 05:17PM

asdasd wrote: »

* E = Euro. Cant find the symbol in this keyboard.

Try Ctrl + Alt + 4/$ , usually works €

I think the fall in Sterling can be good for the UK economy because of increased tourism and increased exports, but obviously bad for any British tourists travelling to the euro zone.

It's good for anyone from Ireland or the euro zone heading to the UK because they'll get a lot more for their money. Not good for Irish exports though with the UK being one of our biggest export markets.

I travel to the UK quite a bit so I'm not complaining about the exchange rate at the moment.

Économiste Monétaire · 15-12-2008 06:27PM

asdasd wrote: »

Personally I think it is. In fact I think that floating currencies are a good thing. It is depressing how cheap the UK is compared to Ireland on the basis of the current exchange rate ( which I know undervalues the pound). On £1 = 1.5 E* I could go to the UK and get a £3 lager and think it merely a bit cheaper than Ireland.

Now is is about 3.30 E. Wages have similarly fallen in price. That gets them a competitive advantage over us, over much of Europe. And the fall in sterling means that wages fall across the board i.e. public and private sector, and profits fall and rent falls. Everybody suffers. Not that the suffering is too much, inflation is not going to rise next year in the UK.

Good idea, that. A separate currency.

* E = Euro. Cant find the symbol in this keyboard.

Good points (except the quip at the end). I wonder by how much the market has priced in a further fall in interest rates. Possibly £1.15 to the Euro... Interest rates are falling everywhere, though.

silverharp · 15-12-2008 06:55PM

asdasd wrote: »

Personally I think it is. In fact I think that floating currencies are a good thing. It is depressing how cheap the UK is compared to Ireland on the basis of the current exchange rate ( which I know undervalues the pound). On £1 = 1.5 E* I could go to the UK and get a £3 lager and think it merely a bit cheaper than Ireland.

Now is is about 3.30 E. Wages have similarly fallen in price. That gets them a competitive advantage over us, over much of Europe. And the fall in sterling means that wages fall across the board i.e. public and private sector, and profits fall and rent falls. Everybody suffers. Not that the suffering is too much, inflation is not going to rise next year in the UK.

Good idea, that. A separate currency.

* E = Euro. Cant find the symbol in this keyboard.

I'm sure all the British expats living in Spain are probably crying in their beer at the moment. Not that I feel sorry for them as such but demonstates the aribitary way in which "wealth" is transferred and promises to pay are defaulted on in a steath manner via the currency market

asdasd · 15-12-2008 06:59PM

silverharp wrote: »

I'm sure all the British expats living in Spain are probably crying in their beer at the moment. Not that I feel sorry for them as such but demonstates the aribitary way in which "wealth" is transferred and promises to pay are defaulted on in a steath manner via the currency market

Well it is good if they are earning. Not so good if they need money from the UK to live on.

ongarite · 15-12-2008 07:14PM

I take the alternate view that the free-fall of sterling could lead to inflation in the UK.
CE companies are hurting big time trying to sell their products with the UK and prices rises on all imported goods are inevitable.
The Japanese CE companies have already admitted as much and won't be the last to raise prices in the UK.

silverharp · 15-12-2008 07:23PM

asdasd wrote: »

Well it is good if they are earning. Not so good if they need money from the UK to live on.

ha , I'd say the ones that are earning were trying flog property to other expats.

But seriously and we will never know but how would Ireland have got on if we still had the punt during this crises , would we have ended up like Iceland , I for one would have shifted my money into marks or swiss francs had the euro not been around

BenjAii · 15-12-2008 09:47PM

It's all hypothetical, but I find it hard not to see us going the way of Iceland had we still had the Punt. That's not to say there aren't disadvantages to the Euro, if we hadn't had really low interest rates to suit Germany in the earlier years of this century, we might not have had the property boom we had.

asdasd · 16-12-2008 01:11AM

I take the alternate view that the free-fall of sterling could lead to inflation in the UK.

The bank of England is predicting lower inflation next year - remember house prices, mortages, rent, and petrol are falling ( and falls in oil feed through the economy).

Senna · 16-12-2008 04:54AM

Économiste Monétaire wrote: »

Possibly £1.15 to the Euro... Interest rates are falling everywhere, though.

Do you really think it could drop to that level?

greatgoal · 16-12-2008 06:29AM

i see their gas bills are dropping 22% and their electricity bills 10%...no fear of that happening here.

Économiste Monétaire · 16-12-2008 11:22AM

Senna wrote: »

Do you really think it could drop to that level?

It was trading at effectively below 1:1., after commission and such, already. If the BoE were to continue dropping interest rates, and eventually engage in quantitative easing, which the Fed is almost certain to do, then I can see no reason why it could not happen. The CPI was better than expected this morning, though.

Just a wild guess really; betting on exact currency shifts is mystic ball stuff at times :pac:

Dub13 · 16-12-2008 11:44AM

Économiste Monétaire wrote: »

It was trading at effectively below 1:1., after commission and such, already.

Yes I was just reading this...

BBC News

The falling value of sterling means some people are getting less than a euro for every pound when changing money, The Observer suggests.

After commission and handling fees were charged, customers at some airports got just 197.13 euros for £200 on Saturday.

Last week sterling fell close to 1.11 euros - but the commercial rate obtained by tourists is usually lower.

Worries that the UK economy would be among the hardest hit by the recession have dented the strength of the pound.

In addition, UK interest rates are at their lowest level since 1951, and are lower than those in the eurozone.

While a euro is worth about 89p now, it was worth 71p at its physical launch in 2002 (and 57p on foreign currency markets during its all-time low in 2000).

As the pound has moved close to parity with the euro, some analysts have raised the possibility of the UK adopting the single European currency.

Martin Slaney, head of derivatives at GFT Global Markets, said that the pound may fall further as economic woes continue.

"The 12-month outlook is pretty bleak for the pound," he said. "The euro is becoming the darling of the currency market and there's no confidence in the pound and I would not be at all surprised if it hit parity with the euro and even fell a bit below that."

The Conservatives and Liberals Democrats have said that the government is to blame for the collapse of the pound - saying that a decision to allow public borrowing to soar in order to fund tax cuts had dented economic confidence.

The chief secretary to the Treasury, Yvette Cooper told the BBC that the the government was not planning to step in to support the pound, saying that attempts by previous administrations to target exchange rates had been unsuccessful.

Instead the government would continue to try to keep inflation under control and support the economy, she said.

"We have never had a policy of targeting the pound. Our policy has been to target inflation and that, I think, has been the right way. It has paid off over the last 10 or 11 years."

The research in The Observer found an exchange rate of 1.0532 euros to the pound on London's Oxford Street - meaning 18 euros cost £19.61 after a handling fee.

Customers at Travelex counters at Liverpool and Birmingham airports were getting 197.13 euros for £200. while those at the ICE Bureau at Luton airport received 199.63 euros for their £200.

Ms Cooper acknowledged that the pound's weakness meant British tourists were suffering as a result of sterling's weakness.

But she said that the low pound was also good for UK exporters whose goods become cheaper for customers in the eurozone.

And with trips to the UK becoming cheaper for visitors from Europe, some firms are hopeful that an increase in tourists will boost business.

mike65 · 16-12-2008 12:06PM

UK treasury is lucky that whereas in the past any currency dive was accompanied by inflation that simply won't be an issue this time, and the exchange rate will protect UK buisness that exports to euozone area to some degree and make the UK a very attractive holliday destination next sumer (assuming anyone is taking hollidays by next summer).

cavedave · 16-12-2008 02:14PM

Is the fall in sterling good for the UK?
Personally I think it is.

Good idea, that. A separate currency.

One thing is that having a small non reserve currency can help lead to drastic problems as happened with Iceland. There is an argument here about why something similar could happen to Britain.

(1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.

Britain is in a much better position then Iceland. It has many more people and a better bank debt to GDP ratio. But it is an interesting read if you consider what could have happened to Ireland if it were not in the euro.

mumhaabu · 17-12-2008 01:40PM

I think the fall in sterling is a good thing as it was overvalued for a long time considering they also had a property bubble like ourselves and considered themselves masters of Europe with a currency that was worth €1.50 and $2.00.

It saw British people sell dingy box flats for alot of sterling (due to their bubble) and then move to palatial mansions in Spain and here too. Quite often they didn't work only draw the dole or work a small bit in whatever country and suck down their private pensions from the Uk, (which though small with the strength of Sterling made them valuable abroad).

The British property boom with the strong sterling thus triggered the Spanish Property Boom and Irish people being the gubbins we are followed them in and the scramble for a piece of the costa's began like the rush for the wild west. The demise of Sterling will bring Britain out of this depression now far ahead of Europe as it will be cheaper to manufacture and pay workers there.

Labour are a sitting Duck and the Tories will be in power in two years, Britain will either have to get back to Industry or rot, I can see two scenarios where Britain is either recovered and doing well or an economic wasteland which will, see the final colonies auctioned off and British Hegemony reduced further and the Euro adopted or else the Tories will withdraw from the EU and let Britain fix itself.

Digi_Tilmitt · 17-12-2008 02:25PM

I think a stronger currency is a good thing. All this "good for exporters" lark about having a weak currency reeks of protectionism. Ultimately you want the currency of your citizens to appreciate relative to other currencies. This forces your own exporters to be more productive, lowers the cost of living given that imports are cheaper and ultimately allows holders of your currency to acquire assets denominated in other currencies at a significant discount to fundamental value.

A currency can't really be "too strong". If a currency reaches an absurdly strong level, then the holders of it can buy assets in other countries at absurd discounts relative to the amount of wealth those assets create. Ultimately if you take it to an extreme, to a large extent a large appreciation of a currency would allow the citizens using that currency to buy up most of the assets of the weaker currency country and basically have the citizens of the weaker country working to earn profits for the country with the strong currency.

asdasd · 17-12-2008 02:35PM

I think a stronger currency is a good thing. All this "good for exporters" lark about having a weak currency reeks of protectionism. Ultimately you want the currency of your citizens to appreciate relative to other currencies. This forces your own exporters to be more productive, lowers the cost of living given that imports are cheaper and ultimately allows holders of your currency to acquire assets denominated in other currencies at a significant discount to fundamental value.

In the long term that is correct I think. Although I see a strong currency as reflecting a strong industrial base. In the short term a drop is not a bad thing at all.

A currency can't really be "too strong". If a currency reaches an absurdly strong level, then the holders of it can buy assets in other countries at absurd discounts relative to the amount of wealth those assets create. Ultimately if you take it to an extreme, to a large extent a large appreciation of a currency would allow the citizens using that currency to buy up most of the assets of the weaker currency country and basically have the citizens of the weaker country working to earn profits for the country with the strong currency.

In effect the US dollar is in that position. Very long term that cannot hold.

mike65 · 18-12-2008 12:20AM

93p today, anyone fancy a virtual punt on if parity will ocure and how soon?

asdasd · 18-12-2008 12:35AM

93p today, anyone fancy a virtual punt on if parity will ocure and how soon?

Parity has already been achieved if you try and change queens head into Euro in most exchanges, or in t'airoport.

SimpleSam06 · 18-12-2008 07:14AM

Digi_Tilmitt wrote: »

I think a stronger currency is a good thing. All this "good for exporters" lark about having a weak currency reeks of protectionism.

You might try telling that to the Chinese, who have been pegging their currency artificially low for years, to the enormous benefit of their economy.

Digi_Tilmitt wrote: »

This forces your own exporters to be more productive,

Or puts them out of business. Or leads to situations like farming subsidies causing major problems in the third world.

Digi_Tilmitt wrote: »

lowers the cost of living given that imports are cheaper

This leads to the situation where you are entirely dependent for everything on imports, and you have very few exports, which is only sustainable if you are the US and everyone uses your currency, and even then you can't keep piling up debt forever, as the current global situation illustrates.

Digi_Tilmitt wrote: »

and ultimately allows holders of your currency to acquire assets denominated in other currencies at a significant discount to fundamental value.

Which only pumps money into their economies and out of your own.

Digi_Tilmitt wrote: »

A currency can't really be "too strong". If a currency reaches an absurdly strong level, then the holders of it can buy assets in other countries at absurd discounts relative to the amount of wealth those assets create.

But if you ever want to move the wealth back into your own country, it gets absurdly discounted.

Digi_Tilmitt wrote: »

Ultimately if you take it to an extreme, to a large extent a large appreciation of a currency would allow the citizens using that currency to buy up most of the assets of the weaker currency country and basically have the citizens of the weaker country working to earn profits for the country with the strong currency.

But again, the profits are worth far less to you. Then you run into situations like the Philippines, where foreign interests are forbidden by law from owning majority shares in commercial interests, or properties of most kinds. A strong currency is only of value if you want to keep pumping money out of your own country, which either beggars it or leads to inflation as you print more to cover the loss.

silverharp · 18-12-2008 09:51AM

SimpleSam06 wrote: »

You might try telling that to the Chinese, who have been pegging their currency artificially low for years, to the enormous benefit of their economy.

They might come to regret that decision as it created alot of inflation and mal investment in the country. I am not even sure why they did it , if your workers are on a 20th of your customers salaries how does a low currency help?
Their strategy seemed to be vendor financing , they were recycling the dollars back in to the US bond market thus allowing the US consumer to get further into debt then they otherwise could.

SimpleSam06 · 18-12-2008 11:25AM

silverharp wrote: »

They might come to regret that decision as it created alot of inflation and mal investment in the country.

They might come to regret the enormous growth of their economy? Maybe they will come to regret the way they spent it, but I guess given their political system it was inevitable. Normally when entire economies grow that large and fast they come complete with a burgeoning middle class and hence democracy shortly afterwards, but the Chinese seem to have kept that under control with a combination of violence and national prestige, along with growing wealth.

Take away the speed of growth or the perception of wealth however, and you lose it all.

silverharp wrote: »

I am not even sure why they did it , if your workers are on a 20th of your customers salaries how does a low currency help?

It doesn't help your workers. As they are in the process of discovering, being the second largest exporter on earth doesn't help when you have nowhere to export to. Thats when your internal markets should help to take up the slack, unless you have been spending a few decades trying to keep them suppressed - doh!

silverharp wrote: »

Their strategy seemed to be vendor financing , they were recycling the dollars back in to the US bond market thus allowing the US consumer to get further into debt then they otherwise could.

I think strategy might be a charitable term in this case.

silverharp · 18-12-2008 11:49AM

SimpleSam06 wrote: »

They might come to regret the enormous growth of their economy? Maybe they will come to regret the way they spent it, but I guess given their political system it was inevitable. Normally when entire economies grow that large and fast they come complete with a burgeoning middle class and hence democracy shortly afterwards, but the Chinese seem to have kept that under control with a combination of violence and national prestige, along with growing wealth.

Take away the speed of growth or the perception of wealth however, and you lose it all.

I think you have to analyse how the GDP was created in the first , no doubt they have built a base for the future and they probably have some of the best infrastructure on the planet but much of the other GDP came from unsustainable and white elephant developments. Here is an example I was speaking to an engineer who was doing some work in China, he ended up in some nowhere town where "the chickens were still running around in the street" anyhoo he is having dinner with the local big wig in a brand new luxury hotel the guy had built , well they were the only 2 people in the hotel. By any standards it was corruption Chinese style, the loan wont be repaid, the hotel will probably close. And no amount of confidence building is going to undo the mal investment. How big a problem this is I have no idea but I'm sure it is common place.

SS06-"I think strategy might be a charitable term in this case. "

too bloody right , it is actually somewhere between economic warfare or economic terrorism.

Begob · 18-12-2008 02:27PM

1€ = 95.49p stg today :eek:

mike65 · 18-12-2008 02:31PM

Hard to credit the speed this is happening, that said the UK treasury has been happy to do nothing.

Fratton Fred · 18-12-2008 04:22PM

mike65 wrote: »

Hard to credit the speed this is happening, that said the UK treasury has been happy to do nothing.

which is what makes me think it is semi deliberate. All the talk of the Bank of england pushing interests rates lower are not needed unless you want the value of your currency to drop.

I get paid in Sterling by the way, I am about to cancel christmas. Ireland was always expensive to me but now it has become unaffordable.

getz · 18-12-2008 04:34PM

Fratton Fred wrote: »

which is what makes me think it is semi deliberate. All the talk of the Bank of england pushing interests rates lower are not needed unless you want the value of your currency to drop.

I get paid in Sterling by the way, I am about to cancel christmas. Ireland was always expensive to me but now it has become unaffordable.

your ok fred but i have already booked and paid for my holiday [in ireland] in feb for the month next year, i only hope the pound moves up against the euro before then, or i will have to eat more in the cottage and less in the restaurants

Digi_Tilmitt · 18-12-2008 11:44PM

SimpleSam06 wrote: »

You might try telling that to the Chinese, who have been pegging their currency artificially low for years, to the enormous benefit of their economy.

What benefit? By artificially holding down the value of their currency they are effectively subsidising our purchase of their own goods. We are receiving a disproportionate amount of goods relative to the purchasing power we exchange in our own currency. Having their currency artificially cheap encourages their businesses to be less efficient which is ultimately detrimental to long term growth.

Or puts them out of business. Or leads to situations like farming subsidies causing major problems in the third world.

Putting "our own" inefficient exporters out of business is a good thing - their capital can be redeployed by the more efficient businesses for a net economic gain.

This leads to the situation where you are entirely dependent for everything on imports, and you have very few exports, which is only sustainable if you are the US and everyone uses your currency, and even then you can't keep piling up debt forever, as the current global situation illustrates.

Japan's currency has appreciated dramatically in the post world war II era. Yet where are the masses of bankrupt Japanese companies who cannot export?

Japanese companies dealt with a rising yen by increasing efficiency, they are now one of the most efficient producers of various types of goods in the world.

I read an academic paper about this only last week. Each wave of yen appreciation was met by aggressive pursuit of more efficient manufacturing practices in the private sector.

Which only pumps money into their economies and out of your own.

More protectionist nonsense. The money should go where it can buy you the most productivity for the lowest price. If more growth can be achieved by investing in productive assets overseas, then it is ultimately better for the country as a whole to invest abroad.

But if you ever want to move the wealth back into your own country, it gets absurdly discounted.

But again, the profits are worth far less to you. Then you run into situations like the Philippines, where foreign interests are forbidden by law from owning majority shares in commercial interests, or properties of most kinds. A strong currency is only of value if you want to keep pumping money out of your own country, which either beggars it or leads to inflation as you print more to cover the loss.

If the exchange rate stayed static and you were bringing everything back in monetary form then yes, this may hold true to some extend. But if you look at what is physically happening, ultimately a stronger currency allows one to acquire the means of production in other countries at a discount to their true value. As owners of those factories, the strong currency country can then consume and/or further refine the produce in their own country.

The weak currency country is selling itself for less than it's true value, and pays for it through slavery to the strong currency country.

Is the fall in sterling good for the UK?

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