Home News Pound sterling is ‘flatlining’

Pound sterling is ‘flatlining’

People living here travelling to Ireland, the European mainland or the US for holidays, family matters or business, cannot but have noticed the depreciation in sterling’s value against the euro and US dollar – making everything more expensive.

And it has hit the weekly groceries as goods become more expensive.

The ever-increasing likelihood of a ‘no deal’ Brexit – to judge by the rhetoric of the UK government – and of a general election meant the pound started this week quite depressed in value after hitting its recent 23-month low against the euro.

To add to the woes of UK households the pound continued to hover close to its 31-month low against the US dollar.

Traders have started to speculate on when – rather than if – sterling reaches parity with the euro and US dollar.

This is despite the better than expected economic statistics for the UK’s all-important services sector.

The international markets have decided it is going to be a rocky ride until there is greater certainty of what happens on and after 31 October.

The Pound and euro have never reached parity in on the interbank market – although travellers who change their currency at airports have been offered parity and less – and the current all-time high for the euro versus sterling is 97p in December 2008.

Sterling has been under pressure not just since the 2016 Referendum but even a little while before it as traders acted on suspicions of political and financial upheaval in the UK.

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The US investment bank Morgan Stanley expects sterling certainly fall to parity, or near parity, with the US dollar if the UK leaves the EU without a negotiated deal on 31 October.

That would surpass the all-time low of $1.04 for £1 sterling reached in early 1985.

Expectations

Even the relatively good news that the services sector’s Purchasing Managers’ Index was up – to 51.4 last month from 50.2 in June – did little to calm expectations.

A briefing to Sunday newspapers by new Prime Minister Boris Johnson’s chief Brexit strategist Dominic Cummings that the Commons just won’t have the time may to stop the UK leaving the European Union without trade agreements in place when it comes back on 3 September.

He suggested that the Labour Party Opposition would have to have laid a motion of no confidence as the House rose for the summer holidays for it to be debated and voted on in time when MPs briefly come back before adjourning for party conferences.

Nevertheless, Downing Street officials are preparing for the loss of a confidence vote, crashing out on 31 October and holding the General Election after that.

At the start of this week the pound fell as low as 92 pence against the euro, the lowest it has been since September 2017.

Against the US dollar, it was not far from its January 2017 low of $1.2080. 

Since May sterling has lost more than eleven per cent against the Swiss franc.

Boris Johnson (Photo: Sam Boal/RollingNews.ie)

Unless you’ve made your money shorting (betting against) sterling as some of Boris Johnson’s Brexit backers have then – if you earn sterling or your savings are in sterling – you will have lost money since 2016…with worse to come if the UK leaves with no deal on 31 October.

A study released this week by economic think tank the Resolution Foundation predicted that most UK families and households would suffer more from a Brexit-induced recession – which the Bank of England last week says has a one in three chance of happening – than in the financial crash over a decade ago.

Incomes have fallen since 2008 amid stagnant wages and increased costs, meaning families have had to cut their outgoings and are now spending a much greater share of their income on essential items such as food and energy – leaving little scope for ‘rainy day’ savings, said the think tank.

Social welfare cuts

Almost 60 per cent of low- and middle-income households have no money set aside, the study found – an increase of a quarter since the last financial crisis.

Huge cuts to social welfare and local authorities since 2010 also mean many households would be less able to cope with another recession.

The think tank said the UK is at its greatest risk of recession since 2007.

It said that for the average household earnings fell by £32 a week between 2008 and 2014 or £1,664 a year.

On top of that, according to the Bank of England, the rise in inflation after the 2016 referendum vote cost the average household at least £404 a year.


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