More Sterling Problems?

by Michael J. Howell13. February 2013 12:21

When in trouble DEVALUE. This has been the response of British policy-makers through the past several decades. With the UK economy understandably fragile because of past imbalances and the Eurozone itself weak, British GDP growth is unlikely to step-up sufficiently to hand Prime Minister Cameron an Election win in two years time. The economy is still too structurally skewed towards financial services, housing and State spending. Chancellor Osborne is slated to cut State spending further, but cannot avoid further weakening demand. Therefore, the only option is weaker sterling and/ or more QE. They have appointed a new BoE Governor who is likely open to more US-style easing. Overall, the fall in sterling back to US$1.55/£ is understandable. Further weakness looks inevitable.

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