Watch the pound

The policy of printing pounds and running a huge public sector deficit under the last government led to a large slide in the value of the pound. This was the main force behind the rise in inflation, taking the RPI to a 5.3% annual rise at the worst.

It is early days, and so far the move is modest, but since the arrival of the Coalition government, and more especially since the budget plans became clearer, the pound has risen a little. Starting at 1.18 Euros to the pound, today it is at 1.23. Against the dollar the pound pushed on above $1.51 yesterday, compared to $1.48 on May 6th. This is the way to bring inflation down. It reflects the beginnings of control over public sector costs.

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12 Comments

  1. christina sarginson
    Posted June 29, 2010 at 8:41 am | Permalink

    This is really good news and lets face it we need it. I hope this continues to inprove.

  2. billyb
    Posted June 29, 2010 at 10:00 am | Permalink

    Please explain how these numbers are not just random market "noise" please !

  3. Iain
    Posted June 29, 2010 at 10:04 am | Permalink

    If we want a restoration of our manufacturing base the last thing we need is sterling rising. The Japanese in the 70's and the Chinese now didn't link their currencies with the dollar for no good reason.

    We have an £80 billion trade deficit. We will not eat into that deficit making imports cheaper with an over valued Pound.

  4. Sally C.
    Posted June 29, 2010 at 10:13 am | Permalink

    It's true, the pound is benefitting from the new government's committment to cut public spending and possibly also from the call by Andrew Sentance for an interest rate rise. Apparently, even the Bank for International Settlements has called for interest rates to rise in order to head off a new round of asset price bubbles. The other problem with keeping interest rates so low for so long is that the banking sector is inflating, as a percentage of the overall economy, as the banks make massive profits due to the fact that their funding costs are so low. Right now we are just pouring money into the hands of the bankers.

  5. oldrightie
    Posted June 29, 2010 at 10:53 am | Permalink

    I hope the FTSE returns to normal, sometime soon. If not, we really will face runaway inflation.

  6. Adrian Peirson
    Posted June 29, 2010 at 12:48 pm | Permalink

    What use is it to compare the pound with other currencies when they are all falling off a cliff.
    The fact is the pound is wirth only as fraction of what it was 100 yrs ago.

    The reason being that we have more and more money in circulation, e have more and more money in circulation because we borrow our money rather than coin it ourselves as a sovereign nation.
    Trouble is the money we borrow comes with interest attached so Govt has to borrow more next yr to pay back the interest.

  7. Lola
    Posted June 29, 2010 at 1:45 pm | Permalink

    Whoopee – 'sound money' on its way, thank God. But, it does mean dearer exports.

  8. Steve
    Posted June 29, 2010 at 2:18 pm | Permalink

    Well, John, if it's more than a temporary blip then it's welcome news. However, much of what we import comes from East and South-East Asia, where currencies tend to track the dollar. There has been little recent improvement in Sterling's exchange rate here. If Bernanke opens up the printing presses again as forecast and magicks another $2 trillion out of nowhere, the USD will slide and there's no doubt that the pound will track it's slide, at least against the important Asian currencies. Our future imported inflation lies at least partly in the hands of the leftist Obama and Bernanke, and that is not good news.

    • Mark
      Posted June 29, 2010 at 6:33 pm | Permalink

      The consequence will be increasing commodity prices as denominated in dollars. More supertankers in Lyme Bay, acting as today's bank vaults.

  9. Ex Liverpool Rioter
    Posted June 29, 2010 at 6:01 pm | Permalink

    The Honeymoon is almost up…………& DC/Ozzy know it. http://news.bbc.co.uk/1/hi/business/10450518.stm

    Did Gordo use slight of hand with the GDP numbers?
    Mike

  10. Adrian Peirson
    Posted June 29, 2010 at 10:01 pm | Permalink

    How can anyone believe that leveraging up deposits ten times will not lead to a bubble.
    All fiat bubbles eventually burst, one thing they could try is scaling the leveraging back, 9 times in yr 1.
    8 times in yr 2
    In ten yrs we might be back to sound money,
    I have a better solution, print off, £1.1 Trillion, give £1 Trillion to the loansharks to whom we 'owe' this money. and put £100 Billion into the economy.

    I'm an engineer, why is it down to me to rescue the country.

    Would anyone here mind if I borrow £150 Billion from international banks nextt year, and Will you agree that the Banks can take the money out of your wages.

    No ? well then why do you allow Westminster to do this.

  11. Javelin
    Posted June 30, 2010 at 12:03 am | Permalink

    For the next 6 months banks are going to struggle as QE is withdrawn. Banks will stop receiving cash and Governments will have to find genuine buyers for their bonds. QE in my opinion is a way if suspending the Government Bond – Banking relationship until banks balance sheets are healthy enough to afford them.

    Banks balance sheets have not improved sufficiently – and in reality never would in such a short period of time – to have made much of a difference. The recession has merely been suspended for a year and the twin problems of Banks weak balance sheets and Government over spending have not really moved on. The hope that somehow a large economy somewhere in the world was going to save us was wishful thinking because the BRIC countries are dependent of Western recovery.

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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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