Watch the markets

The Uk government now has to pay 1% (100 basis points) more than the German government to borrow ten year money. Today the Bank of England Governor said they might need to do some more quantitative easing. I guess that is an attempt to stop the rot with markets forcing rises in UK interest rates.

The pound is also around $1.54, a further erosion of value in recent weeks.

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18 Comments

  1. Lindsay McDougall
    Posted February 23, 2010 at 10:41 pm | Permalink

    Surprise! Germany's fiscal deficit is expected to be about 5.5% of GDP in 2010; the UK's is expected to be about 12.5% of GDP. To whom would you prefer to lend?

  2. Michael Lewis
    Posted February 24, 2010 at 12:27 am | Permalink

    I've long had a very low opinion of Mervyn King, he is increasingly political in his statements. More QE , … I don't know what planet the man is on. Roll on the election …. I will -not- be voting UKIP, every vote counts, this country needs to get rid of Labour.

    • waramess
      Posted February 24, 2010 at 4:34 pm | Permalink

      But Georgie has said he will retain Merv!

  3. Ian Jones
    Posted February 24, 2010 at 9:03 am | Permalink

    So the policy is to inflate away the debts. Time to buy assets and get out of sterling, it will be trashed and destroyed by the end of this. So the last decade was just a brief lull in the decline of Britain.

  4. Mark Parker
    Posted February 24, 2010 at 10:55 am | Permalink

    I have to disagree with Ian Jones: the last decade was not a brief lull in our decline, it was an acceleration masked by incredible borrowing; done with the active connivance of New Labour in the sure knowledge that there would eventually be a reckoning but always pushing that day into the future.

  5. Sally C.
    Posted February 24, 2010 at 11:07 am | Permalink

    The most depressing thing that I heard today was that Sterling has reached a 25 year low ( which probably means an all-time low) against the Aussie Dollar. The second most depressing thing was listening to Mervyn King ( more QE!) talking to the pointless/useless Treasury Select Committee. I don't think any of them understand how much damage the Bank of England has wrought on our economy over the last ten years. The Treasury Select Committee clearly hasn't a clue about how the B of E, through its open market operations, allowed the banks to go on a huge credit creation binge. They don't understand the intricacies of reserve requirements ( or lack thereof), consequently, they don't ask the right questions and they don't have confidence when dealing with the B of E. Gordon Brown's tripartite regulatory system was clearly a disaster but I can't face discussing that right now.

  6. moulin à paro
    Posted February 24, 2010 at 11:34 am | Permalink

    Aren't you surprised the premium UK has to pay isn't greater? There has been appalling mismanagement of our national resources, I must say for several decades, although most appallingly in the last thirteen years. I read today that Norway's national sovereign wealth fund has over £250 billion in assets, that's from simply being wise with their share of North Sea oil and gas. Then look at the mess UK is in, the money spent on pumping up property prices, on drink, junk, play stations, holiday homes overseas and the like. Mr Micawber could only have been British!

    • SJB
      Posted February 24, 2010 at 3:16 pm | Permalink

      I would love to know why the UK never decided to put, say, just 5% of its North Sea revenues towards researching other energy sources, particularly tidal power.

      • APL
        Posted February 25, 2010 at 1:37 pm | Permalink

        SJB: " just 5% "

        Our politicians decided it would be a good idea to pay welfare instead.

      • JimF
        Posted February 25, 2010 at 8:30 pm | Permalink

        Or even into a Sovereign Wealth Fund. Or even be able to pay pensions out of accrued income. Spend today earn tomorrow should be the motto of the Royaume Uni.

  7. JT
    Posted February 24, 2010 at 12:35 pm | Permalink

    Re. Oil Fund
    Its not just simply from being wise with their share of North Sea oil & gas.
    You have to factor in population.
    The needs of 4-5mil people vs 60-65mil people means different demands on the revenues … and therefore the reason why one has surplus to spend on creating a funded pension system .. and the other does not.

    • moulin à paro
      Posted February 25, 2010 at 10:55 am | Permalink

      Or you could say that the country with the much bigger population actually had the greater need to put money aside from the oil and gas revenues into a pension fund. Just think, £250 billion would now represent about £25,000 for each state pensioner in Britain, sufficient to cover state pensions for the next five years.

      • JT
        Posted February 25, 2010 at 12:11 pm | Permalink

        Thats an easy arguement .. and a very winnable one.
        Problem is politicians / government (all colours) find ways to spend money .. ie spending meets the amount available. In Norway they have spent like crazy on everything and still have left overs .. The UK have spent like crazy, and well, we all know the rest …

  8. Giles
    Posted February 24, 2010 at 2:28 pm | Permalink

    Do you want a high pound or a low pound?

  9. Mike Stallard
    Posted February 24, 2010 at 5:37 pm | Permalink

    When I wake up in the night, I lie in bed with this nightmare: Britain is at last a Socialist Country, entirely dependent on hand-outs from a callous and self-serving political class which nobody expects to be either honest or sensible.

  10. Ex Liverpool rioter
    Posted February 24, 2010 at 6:45 pm | Permalink

    John
    It was $1.34 not long ago & i seem to recall in the early 80's we got down to almost 1:1 with the $.

    You worry too much La.
    Mike

  11. Steve Cox
    Posted February 25, 2010 at 2:58 pm | Permalink

    It's misleading to only compare the value of the pound with the US dollar, as they are in almost as much of a mess as we are, and their currency is almost as much junk. That's why a basket of currencies must be used, and then the truth appears that we are in deep doodoo land. Yet the incompetent (m)puppet Mervyn King continues to talk down the pound. Since Sterling collapsed there have been serious problems resourcing certain expensive drugs for the NHS, as pharmaceutical companies find it more profitable to sell them abroad due to the weak pound. So far I have only seen this highlighted in the Daily Mail, but it is a genuine problem as I need one of those drugs and have been having problems getting it for over a year now. Why is oil half the price it was at its peak, and yet the price at the pumps is just about the same as it was then? Blame the drop in the value of Sterling, as oil is priced in USD (OK, tax increases count too, but not for as much as devaluation). And so the list goes on. Why is chicken so expensive now compared with a few years back? Because we import a lot of it from Thailand, and the pound has collapsed by over 30% against the Thai Baht. Etc., etc., etc.

    The tabloid readers think that a weak pound only impacts the 'rich' people who take a foreign holiday, but it has a strongly negative effect on everyone in this country, apart from the few whose jobs depend on a weak pound. and as that would be low-end manufacturing, why worry about it, do we really need to keep those jobs at the cost of imported inflation? I think not.

    John, perhaps the Conservatives could make something useful out of how stupid the government's and BoE's policies are by highlighting increasing cost of a weak pound on the ordinary Joe Sixpack in the street? It doesn't only affect well-off tourists, it eats away at everyone's food and energy budget. Economists try and make it sound complicated, but it's really not. For a nation that imports far more than it exports, like the UK, a weak currency can only favour a minority.

  12. ThousandsOfMilesAway
    Posted February 28, 2010 at 1:28 pm | Permalink

    GBPUSD looks like utter death – expecting the 2009 low to be taken out this year.

    But that's ok as my savings are in dollars and I am just about to start getting paid in CHF.

    More worryingly still for UK plc, there is a very heavy correlation with GBP and the equity markets – check out 2007 – where the pound leads, equities will follow. The FTSE has already emphatically broken its 2009 uptrend.

    2010 is not going to be pretty.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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