'Run on UK' sees foreign investors pull $1 trillion out of the City
Banking crisis undermines Britain's reputation as a safe place to hold funds
A silent $1 trillion "Run on Britain" by foreign investors was revealed yesterday in the latest statistical releases from the Bank of England. The external liabilities of banks operating in the UK – that is monies held in the UK on behalf of foreign investors – fell by $1 trillion (£700bn) between the spring and the end of 2008, representing a huge loss of funds and of confidence in the City of London.
Some $597.5bn was lost to the banks in the last quarter of last year alone, after a modest positive inflow in the summer, but a massive $682.5bn haemorrhaged in the second quarter of 2008 – a record. About 15 per cent of the monies held by foreigners in the UK were withdrawn over the period, leaving about $6 trillion. This is by far the largest withdrawal of foreign funds from the UK in recent decades – about 10 times what might flow out during a "normal" quarter.
The revelation will fuel fears that the UK's reputation as a safe place to hold funds is being fatally comp-romised by the acute crisis in the banking system and a general trend to financial protectionism internat- ionally. This week, Lloyds became the latest bank to approach the Government for more assistance. A deal was agreed last night for the Government to insure about £260bn of assets in return for a stake of up to 75 per cent in the bank. The slide in sterling – it has shed a quarter of its value since mid-2007 – has been both cause and effect of the run on London, seemingly becoming a self-fulfilling phenomenon. The danger is that the heavy depreciation of the pound could become a rout if confidence completely evaporates.
Colin Ellis, an economist at Daiwa Securities, commented: "The outflow of overseas banks' UK holdings is not surprising – indeed foreign investors in general will still be smarting from the sharp fall in the exchange rate last year, as many UK liabilities are priced in sterling terms. That raises the question of what could possibly tempt overseas investors to return to the UK. Further heavy outflows of funds are probably a given."
The Bank of England said that there had been a large fall in deposits from the United States, Switzerland, offshore centres such as Jersey and the Cayman Islands, and from Russia.
Paranoia that the UK could follow Iceland into effective national insolvency and jibes about "Reykjavik on Thames" will find an unwelcome substantiation in these statistics – which also show that stricken British banks are having to repatriate similar sums back to Britain. This is scant consolation for the authorities, however, as it means the UK and sterling are, like some emerging markets and currencies, suffering from a flight of capital. By contrast some financial centres and currencies – notably the US dollar and the Swiss franc – are enjoying a boost as "safe havens" in a troubled world.
The sudden international trend towards financial deglobalisation and the flight of money to "home" bases has nonetheless been dramatic. The Prime Minister has already warned about this drift to "financial protectionism" – even though UK banks brought back almost $600bn in the last months of 2008, as they attempted to repair fragile balance sheets. Mr Ellis added: "These data are consistent with UK banks reducing their overseas holdings, at the same time as overseas banks scale back their presence in the UK. That is not surprising, given that governments around the world are having to prop up their banking sectors, and in turn demanding that national institutions focus on domestic markets. But it does run the risk of being financial protectionism by the back door."
Investment from the West into developing countries has fallen from the level of about $1 trillion a year seen earlier this decade to about $150bn last year. Economies in eastern Europe such as Hungary and the Baltic republics, some in Asia such as Pakistan and developed nations such as Iceland have been severely hit by the collapse in foreign investment.
Like Iceland, the UK has an unusually large banking sector in relation to her national income, with liabilities four times GDP. Should the UK taxpayer have to assume these debts it will represent, in relation to GDP, about double the national debt the nation bore at the end of the Second World War, a near unsustainable burden.
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Comments
For a nation which was once the "Workshop of the World" it is humiliating. We are now rueing the day we let our once-proud industries fold without a fight.
Dont get depressed though, the revolution is very nearly here, isnt it?
But what will be London's version of the guillotine? Now that I dont know.
I bet one thing though, Labour will be out of government by the end of this summer.
PS why not study some of Goebbels speeches, relevant now??
abbalong
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It's not unlike being a (competent) professional gambler.
The filth lives in higher branches of the tree
Please fix the Bad Unicode problem with LiveJournal, it's getting very annoying!
Meanwhile, and remember we are 6 months into this "crunch", the Government are actively blocking attempts to help businesses cut costs and get access to credit.
Quite simply if you made a list of all the interventionist options a government has at it's disposal to influence economic conditions in a negative way then Labour have chosen them all.
Britain was broken down a few years ago - now Labour are carting it off to the scrapyard.
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That translated into salaries and bonuses.
I guess we'll now have to concentrate on getting jobs in which we actually 'do' stuff instead of sitting in front of PCs chatting about last night's telly!
She will go down in history as being one of the reasons to revolt, takes time though, about 25 years I think...
Her son though is a different case..
I think that the plan is to drown them in green custard!
I hope that the revolution is nearly here, in fact it is difficult to see how it can be avoided!
When a man cannot feed his wife and kids he has nothing to lose!
They seem determined to push the population, especially the Brits and Yanks to the limit!
Prost!
Old Nick
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PAY PAL KOOKIE KOLLEKTOR
JEWISH LAWYURZ
JEWISH POLLYTITIANS
Someone here already has an answer; he's just looking for the question to go with it.
In effect it's a state subsidy to low-paying employers, landlords and utility companies because they're the ones who benefit in the end.
The entire economy has been run on a kind of smoke and mirrors basis for the last decade and now it's all coming crashing down.
No, they are working to create a Marxist state. Russia never was one, was it?
I tell you right now. If this 'run' had anything to with a Muslim, it would be all over the news like a rash.
But it's also worth mentioning Gordon Brown's (ab)use of anti-terrorist legislation to freeze Icelandic banking assets in the UK last year.
At a stroke, Gordon Brown destroyed the reputation of British banks as a safe place for foreigners to invest large amounts of money. Small wonder that foreign investors are taking their funds elsewhere.
Not at all envious of all that money, let them have.
Shall go and plant some more potatoes and carrots and wait for the spring equinox. :-)
That way we'll be alright surely.
Greed, selfishness, and ungodliness, is the prime reason the WORLD is in the monetary condition is in.
God has allowed us to sink ourselves. He is about to bring everything to a close. It is well time for those who call themselves Christians to make SURE they are right with God.
Revelation 8:8 Is a prophecy that reveals that a giant Asteroid is soon to strike near the middle of the Atlantic ocean. The destruction and carnage will be worse the Earth has suffered except for the Flood of Noah event. Every structure on the shores surrounding the Atlantic will be totally destroyed by the Giant Tsunami's that will be generated by the Asteroid impact. New York City will be wiped off the map!
Get ready, get ready, get ready!!!!!!
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