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Mervyn King: Party Pooper
inspector_monkfish
Posts: 9,276 Forumite
17:36 12May10 - Mervyn King: Party Pooper
Mervyn King, Governor of the Bank of England, has spoiled sterling's party faster than a grumpy dad turning up at a secret teenage booze-up.
The currency shot higher as soon as David Cameron set foot in 10 Downing Street and his party--the Tories--sealed a power-sharing alliance with the Liberal Democrats.
It was a big relief, after the somewhat scary risk seen earlier this week that the U.K. could end up with a highly unstable rainbow coalition dogged by stubborn special-interest groups.
Cue a 2% leap in the pound from its low point Tuesday, pushing it to a peak of $1.5045 against the dollar.
Then the Bank of England started its quarterly inflation report, with some dour messages from King.
First off, inflation looks set to be lower for longer than many investors had expected--a factor that keeps currency-supporting interest rates low.
In addition, King was very grim-faced in his wake-up call over the risk of a sovereign debt crisis in the U.K. It's a very clear risk, and one that can be quashed only by pretty brutal spending cuts, he suggested.
He wasn't entirely gloomy, stressing strongly that he welcomes the
budget-slashing plans that he has seen from the new coalition so far.
And he's absolutely right, of course. Still, this party-pooping sent the
pound tumbling back down to the $1.49 area.
The point is that the U.K. has a new government, but old problems. It's not exactly staring down the barrel of a Greece-style rout, as its debt profile is somewhat different to Greece's, and the U.K. enjoys the ability to let its currency drop far enough to boost exports and get the country out of a hole.
Still, complacency at this point would be daft. That makes it tough for
investors to hurl themselves into U.K. assets before the new government has laid out its emergency budget, which it intends to do within 50 days. Even more importantly, investors want to see what the ratings agencies think.
It might be a good idea to keep the champagne on ice.
Mervyn King, Governor of the Bank of England, has spoiled sterling's party faster than a grumpy dad turning up at a secret teenage booze-up.
The currency shot higher as soon as David Cameron set foot in 10 Downing Street and his party--the Tories--sealed a power-sharing alliance with the Liberal Democrats.
It was a big relief, after the somewhat scary risk seen earlier this week that the U.K. could end up with a highly unstable rainbow coalition dogged by stubborn special-interest groups.
Cue a 2% leap in the pound from its low point Tuesday, pushing it to a peak of $1.5045 against the dollar.
Then the Bank of England started its quarterly inflation report, with some dour messages from King.
First off, inflation looks set to be lower for longer than many investors had expected--a factor that keeps currency-supporting interest rates low.
In addition, King was very grim-faced in his wake-up call over the risk of a sovereign debt crisis in the U.K. It's a very clear risk, and one that can be quashed only by pretty brutal spending cuts, he suggested.
He wasn't entirely gloomy, stressing strongly that he welcomes the
budget-slashing plans that he has seen from the new coalition so far.
And he's absolutely right, of course. Still, this party-pooping sent the
pound tumbling back down to the $1.49 area.
The point is that the U.K. has a new government, but old problems. It's not exactly staring down the barrel of a Greece-style rout, as its debt profile is somewhat different to Greece's, and the U.K. enjoys the ability to let its currency drop far enough to boost exports and get the country out of a hole.
Still, complacency at this point would be daft. That makes it tough for
investors to hurl themselves into U.K. assets before the new government has laid out its emergency budget, which it intends to do within 50 days. Even more importantly, investors want to see what the ratings agencies think.
It might be a good idea to keep the champagne on ice.
Please take the time to have a look around my Daughter's website www.daisypalmertrust.co.uk
(MSE Andrea says ok!)
(MSE Andrea says ok!)
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