David Prosser: Rumours of the pound's demise were premature

Sterling's strength is cushioning usagainst the upwards spike in the dollar oil price

So what does Standard & Poor's know anyway? Less than a fortnight after the ratings agency singled out the UK for a possible credit rating downgrade following the next election, sterling is valued more highly than at any time since last November. It is strong against both the dollar and the euro, and getting stronger all the time.

Could it be that international investors do not regard the UK with quite the same concern as S&P? Well, it's worth remembering that S&P always said it was only raising the possibility that a downgrade might occur if the next Government failed to get on top of the public finances – any cut in our rating would, therefore, be unlikely before the end of next year at the earliest.

Still, perceptions change remarkably quickly: sterling's recovery is a story of how what markets think about risk has changed. Our banking sector does, mercifully, seem to have stabilised, and lending is beginning to normalise, which is doing wonders for the way in which the risk of investing in this country is being perceived.

For hard-pressed companies both small and large, it may be difficult to believe that lending markets are thawing. Many continue to find their banks are being exceptionally difficult about credit.

Unfortunately, however, lending does tend to contract during a recession, as banks seek to protect themselves from the fall-out of businesses' difficulties. Since we have been going through a credit crunch, we assume that every instance of a bank raising interest rates, cutting overdraft limits or refusing to lend is a symptom of that crisis. In fact, it may just be old-fashioned recession-proofing.

In fact, everywhere you look, from a top-down view at least, lending markets are becoming easier. For consumers, loans to finance house purchases are increasingly slowly but surely, with the biggest lenders beginning to relax their criteria. For corporates, markets that were more or less shut even a month or so ago are beginning to reopen. Look at the junk bond refinancing – worth $650m – successfully got away by Virgin Media yesterday, for instance.

These trends are driving a reappraisal of the relative risks of asset classes. While the crisis was in full swing – and for some time thereafter – investors flocked to the dollar, the world's safe-haven currency. Now we are back in more normal times, the flight to quality is no longer so prevalent (and the perception of the actual quality of the US is, in any case, being questioned).

Happy days then? Well, not quite.

A weak currency is a symptom of a weak economy, as the Conservatives never tired of saying when sterling came ever close to parity with the euro earlier this year. The recovery of the pound is, then, a welcome sign that the UK may not be quite the basket case it seemed recently. But sterling's gains aren't going to do much to help our embattled manufacturing sector – which still accounts for 15 per cent of the economy, remember – hawk their wares around the world.

That's doubly frustrating in that when the pound was at its lowest, there were few takers for our goods from other struggling countries. As the global economy bottoms out – and, in time, recovers – takers will find goods have become more expensive.

Still, there are upsides. Sterling's strength is cushioning us to some extent against the remarkable upwards spike in the dollar oil price. And remember how worried everyone was about the inflationary consequences of the low value of sterling. At least some of those fears should ease, which is handy given the worry that quantitative easing also has inflationary consequences.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
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

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before