New fears for pound after UK's credit rating drops
Sunday 24 February 2013
Sterling is expected to come under pressure tomorrow following the loss of Britain's gold-plated AAA credit rating.
The pound fell late on Friday after ratings agency Moody's downgraded the country to AA1 - warning sluggish growth would continue for years.
The UK currency has already come under significant pressure this year amid mounting fears of a downgrade as growth and public borrowing figures continue to disappoint.- falling about 7% against the US dollar to 1.51 US dollars.
It has also fallen strongly against the euro to 1.15 as the UK's deepening economic woes contrast with increasing optimism in the eurozone and hopes the single currency will survive after the European Central Bank launched its bond-buying rescue plan.
Howard Archer, chief UK and European economist at IHS Global, said the pound would be "particularly vulnerable" after the downgrade, but said the markets had been increasingly pricing in the AAA rating loss for some time.
But the Federation of European Employers warned that Moody's decision could have a profound impact on the City of London as one of the world's top financial centres.
Secretary-general Robin Charter said: "The downgrading of the UK's credit status is a blow for the UK as a leading financial centre and the UK balance of payments is so reliant on its financial services that even a small loss in trading income could affect the value of sterling and have a major impact on GDP."
Gerard Lane, analyst at Shore Capital, said the credit rating reflected reality and that sterling needed to fall to parity against the euro and to 1.35 against the US dollar in order to rebalance the UK economy.
He said sterling needed to fall to "bring reality to bear on the UK consumer that we as a country - and we collectively as a consumer - are not as rich as we think we are". He said it would give exporters a chance to grow, given the need to replace oil exports, which in turn should be a source of jobs.
But business groups have warned that urgent action to get the economy moving again is needed in the Budget next month in the wake of the downgrade.
John Longworth, director general of the British Chambers of Commerce (BCC), warned that the Prime Minister and the Chancellor would have to look into more radical measures in the next six months, to stimulate exports, generate infrastructure development and create a business finance environment which favours enterprise and growth.
He said: "The fact that the ratings spell has been broken allows the Chancellor to be braver on growth, provided the growth stimulus sought reflects market sentiment."
But Ben Thompson, managing director of the Legal & General Mortgage Club, said markets would have expected the downgrade to a certain degree and there would not be too much disruption to the cost of funding.
He said plans such as the Government's Funding for Lending Scheme - which sees the Bank of England provide cheap money to the banks - should mean cheap funds were at the ready and mortgage pricing should continue to remain low.
- 2 Saudis risk new Muslim division with proposal to move Mohamed’s tomb
- 3 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 4 Cee Lo Green: It is only rape if the victim is conscious
- 5 Nigerian witch-finder Helen Ukpabio threatens legal action against human rights organisations
Emma Watson on Jennifer Lawrence naked photo leak: 'Even worse than seeing women's privacy violated is reading the comments'
Victoria Justice on naked photo leak: 'Let me nip this in the bud right now – pun intended'
Ariana Grande nude photos leak: Pictures are completely fake, say representatives
Saudis risk new Muslim division with proposal to move Mohamed’s tomb
Kate Upton nude photos leak: Model's spokespeople 'looking into' authenticity of indecent images
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Ashya King: Parents of five-year-old boy refused permission to visit him in hospital and denied bail at Spanish court
With Douglas Carswell joining Ukip, my party has taken another giant step forward
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
Ashya King: 'Cruel NHS has not given us the treatment we need', says father of five-year-old with brain tumour who fled to Spain
£55000 - £65000 per annum: Harrington Starr: A Global Financial Service Organi...
£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...
£40000 - £50000 per annum: Harrington Starr: A Global Financial Service Organi...
£50000 - £70000 per annum: Harrington Starr: One of the global leaders in prov...