How far will Sterling be allowed to fall?

handful

I was wondering what views some of you have on this subject. Is the focus on interest rates going to remain on the control on inflation/deflation or will we reach a point when sterling becomes more important and rates are raised?

This could dramatically change the current flow of opinion that we are in for a significant period of low interest rates to control the threat of deflation.

How low would it need to go for it to completely destroy any businesses that rely on imports? Dollar parity perhaps?

Comments welcomed.

Treadmill

With 0% interest rates looming all round I think that the Euro, Dollar and Pound will all reach parity, we all have the same problems

iltisman

I found the Beebs reporting on the drop in the pounds value amusing, they said it would be good for exporters and the only exporter they could find was a bloke selling half a dozen second hand black cabs.

Generali

handful wrote: »

I was wondering what views some of you have on this subject. Is the focus on interest rates going to remain on the control on inflation/deflation or will we reach a point when sterling becomes more important and rates are raised?

This could dramatically change the current flow of opinion that we are in for a significant period of low interest rates to control the threat of deflation.

How low would it need to go for it to completely destroy any businesses that rely on imports? Dollar parity perhaps?

Comments welcomed.

Dollar parity would be a big concern I would think as that's lower than the pound has ever been.

TBH I think the Government just hasn't thought through the ramifications of what they're doing. They can't rely on the money magically being there for them to borrow when every other Government is trying to do the same thing.

The only way for the Government to borrow all of what they seem to want to spend will be nationalisation of the pensions system, probably indirectly by making pension funds invest in safer assets (ie Gilts).

kennyboy66_2

handful wrote: »

How low would it need to go for it to completely destroy any businesses that rely on imports? Dollar parity perhaps?

Comments welcomed.

The only businesses it is likely to destroy directly are ones importing and selling directly to consumers who decide that the price becomes too much.

We have been here before, both in 1981 & 1991 where the devaluation was a huge boom to the UK economy. However it takes time for exports to pick up (I reckon at least 6 months).

Sterling fell from $2.40 all they way down to $1.06 in the early 80's.

If you can remember Deutcshmark exchange rates, the current 1.12 Euros is equivalent to about 2.05 DEM to the £, the previous low was about 2.18 DEM.

It is symptomatic of a more long term trend of sterling falling .

StevieJ

Treadmill wrote: »

With 0% interest rates looming all round I think that the Euro, Dollar and Pound will all reach parity, we all have the same problems

Why would we reach parity if we all have the same problems

WTF?_2

kennyboy66 wrote: »

The only businesses it is likely to destroy directly are ones importing and selling directly to consumers who decide that the price becomes too much.

We have been here before, both in 1981 & 1991 where the devaluation was a huge boom to the UK economy. However it takes time for exports to pick up (I reckon at least 6 months).

Sterling fell from $2.40 all they way down to $1.06 in the early 80's.

If you can remember Deutcshmark exchange rates, the current 1.12 Euros is equivalent to about 2.05 DEM to the £, the previous low was about 2.18 DEM.

It is symptomatic of a more long term trend of sterling falling .

It's going to hit retail bigtime - upward pressure on the imported goods they sell the consumer combined with the consumer having less money to spend and being tighter with their purse-strings.


As for exports, it will certainly help them eventually but they currently account for 10% or less of GDP and it will be tough exporting in a global recession.

Heyman_2

I know that inflation/deflation has been discussed here a lot, but would it be fair to say that the current devaluation of the pound that we're seeing, if sustained, will see inflation start to rise?

shaven-monkey

The price of imported goods will rise due to exchange rate changes.
The price of goods will fall as a result of lower consumer demand.
The cost of labor will fall in the uk due to increased unemployent in the service sector.
Manufacturing industry in the UK will grow due to more competetive labor costs and favorable export conditions.

As long as you can afford to eat and keep a roof over your head, you're fine. Otherwise welcome to capitalism v2.0

epz_2

Generali wrote: »

Dollar parity would be a big concern I would think as that's lower than the pound has ever been.

TBH I think the Government just hasn't thought through the ramifications of what they're doing. They can't rely on the money magically being there for them to borrow when every other Government is trying to do the same thing.

The only way for the Government to borrow all of what they seem to want to spend will be nationalisation of the pensions system, probably indirectly by making pension funds invest in safer assets (ie Gilts).

And in a single stroke kill any desire for a lot of people to save for a pension!

While it might not have a real effect to many people, everyone knows you cant trust the government to look after your cash and locking it away when you about enter an era of massive inflation would be poisonous to the pensions industry.

handful

epz wrote: »

And in a single stroke kill any desire for a lot of people to save for a pension!

While it might not have a real effect to many people, everyone knows you cant trust the government to look after your cash and locking it away when you about enter an era of massive inflation would be poisonous to the pensions industry.

Surely this argument has two sides. If there is high inflation, the govt would raise interest rates which is good for investments that pension providers pay into....except the value of the investments would quickly devalue. Heck, I don't know. All I know is that in the 70's and 80's it was monetary policy that was the buzz words and controlling Sterling was the no 1 priority whereas now it seems that inflation is more important. Maybe because that was when we had manufacturing industry and had something to export!