Brighter outlook for exporters

To gauge the pain caused to exporters by this year's rally in sterling, one has to look no further than British Steel. John Bowden, head of investor relations at the company, reckons the rally in the British pound cost Europe's biggest steelmaker pounds 625m in lost profit - plus 2,000 jobs - in the first six months of 1997.

He's seen the forecasts saying sterling will give back some of the 25 per cent gains it's made against a trade-weighted currency basket in the past 18 months. Nevertheless, he's not willing to bet the pound will weaken. "What if it doesn't?" he said. "We can't operate our company on the basis of economic forecasts."

Economists are saying the pound will give back half of the advance it's made since the summer of 1996, as five increases in interest rates this year combine with a deteriorating trade balance to slow economic growth.

"We expect sterling to decline against the deutschmark by a good 5 to 10 per cent from here," said David Thomas, senior economist at ICI. "If sterling should fall 10 per cent in the first half of next year, that should undo not all the damage it had this year, but a lot of it."

Sterling's rise of more than 25 per cent against the currencies of Britain's main trading partners has sent export profits tumbling. After months of cutting margins to keep overseas business, as sterling's strength made UK goods more expensive, companies say they're now losing clients.

The rise in sterling slashed pounds 50m off ICI's third-quarter earnings, cutting its profit for the period to pounds 76m. The company is forecasting the currency will slump as low as Dm2.60 by this time next year, down from its current Dm2.96.

The two main forces that have driven sterling higher this year are beginning to unwind. The country's benchmark lending rate isn't expected to rise much above its current five-year high of 7.25 per cent, while investors see less chance of Europe's plans for a single European currency unravelling before the 1 January 1999 start date.

Moreover, the one prop that's still supporting sterling - the prospect of the Bank of England increasing its base rate by a final quarter-point - looks increasingly unsound. "Another rate rise won't do any good for the currency since it would appear to be behind the inflation curve - and therefore against a backdrop of slower growth," said Francis Breden, currency economist at Lehman Brothers International, who expects the pound to end 1998 at Dm2.60, and as low as $1.55 from the present rate of $1.66.

The IMF expects UK growth to slow to 2.4 per cent next year, down from an estimated 3.5 per cent this year. Slower growth might persuade the monetary policy guardians that they don't need to tighten again.

"We see a scenario of UK growth slowing over the next year," while European growth accelerates, said Tom Barman, fund manager at Rothschild Asset Management. "There should be a correction in the overvaluation we presently see in sterling."

For Bowden at British Steel, sterling's gains to Dm3 in July from Dm2.40 at the beginning of January did most of the damage.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there