Sterling drops to record low against euro

Peter Garnham
Financial Times
Friday, March 28, 2008

Sterling lost ground on Friday as falling UK house prices and a drop in consumer confidence added to the pressure on the Bank of England to cut interest rates.

A survey from the Nationwide building society showed UK house prices fell 0.6 per cent in March, while data showed consumer confidence dropped to its lowest level since 1993.

“Storm clouds are once again gathering on the horizon for the pound,” said Paul Robson at RBS. “Higher mortgage rates and tighter lending conditions will increase the pressure on the Bank of England to cut interest rates further.”

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Meanwhile, the pound failed to get a boost from figures showing the fourth quarter UK current account deficit came in narrower than expected, showing a £8.5bn shortfall against predictions for a £18bn gap.

Analysts said imbalances have become more of an issue in the currency markets recently given the fact that when risk appetite is low, speculative flows that fund deficits can reverse quickly.

However, the narrowing of the deficit was mostly due to an £8.7bn fall in foreign earnings on investments in the UK as a result of financial institutions suffering from the recent market turmoil.

Howard Archer at Global Insight said this was hardly the most encouraging of developments, especially since the underlying situation remained worrying with the traded goods deficit edging up further to a record £23.2bn in the fourth quarter.

“Sterling is therefore unlikely to gain much relief from the lower than expected current account deficit,” he said.

Full article here.

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