The British economy and sterling
December 05, 08 by Mark75[AUTOMATIC TRANSLATION - SEE NOTE]
The pound is the currency that is experiencing the worst Performance between those economies more , a devaluation in 12 months of around 16.5% against the Euro, and over 25% against the dollar and even almost 40% against the yen.
The problem of the British currency is the problem of ‘ UK economy, namely that over the years it has been proposed as a “financial center” (if not the center, at least one of the principal) of the world, and was allowed the creation of a “bubble brick ” with a “mania purchase” of property that has been fueled by credit agencies financing deals with unsustainable . The extreme case is also the spread of mortgage in which the contractor pays only the interest, not to repay the principal, based on ‘ illusion that house prices would never have fallen , and then one would, in fact, could easily pay for the house when selling it. A model, however, unsustainable , and it is no coincidence that British banks have been among the first to be in big trouble (just look at Northern Rock case ).
The deteriorating economic conditions the country has led to capital flight , which has inevitably resulted in the sale of sterling by the ex-investors.”
In order to address this crisis, the Bank of England cut rates as much as one percentage point to 2% , a value in the United Kingdom touched since 1939. Not only is likely to make a January, the BoE cut another half point, bringing the rates at 1, 5%, it would be a record for the last four hundred years.
What to expect for the future? Optimists argue that the most negative predictions have been “embedded” in exchange , so not English money should not lose more.
But much depends on how you develop the state of the British economy in the coming months , and by the ‘mood’ of the market in their complex. Some analysts point out that it is not impossible that as “theoretically” the currency might have reached the minimum, to arrive at a situation where there are no buyers (because of fears justified or not, risk aversion, lack of resources for investment), which could cause a sudden and very rapid collapse of almost the value of money: if there are few buyers, sellers must be satisfied, and if there are very few buyers and sellers should necessarily sell, they may find themselves having to accept prices “unreasonably low”, which it could trigger a race to sales.
For these reasons, in Britain are increasing voices of those who attempted accession to the euro : This is a process but will not be immediate but will take some years, but is probably inevitable. In fact the non-accession to the euro is due to the diversity of economic policies with the rest of the EU, as London itself as precisely as an international financial center, but it is possible that this role should be reduced as a result of the current financial crisis, not only for Economic Affairs of the United Kingdom but also because you may make changes to the regulations of markets, such as changing the role of these centers.
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