Monday, September 01, 2008

Pound Falls To New Lows

The pound fell to a new all-time low against the euro and to the lowest since April 2006 against the U.S. dollar today. The reported reason for this was more bearish economic news about the U.K. economy and a statement from Chancellor of the Exchequer (U.K. Finance Minister) Alistair Darling that said that the U.K. faces its worst economic difficulties for 60 years. That saying a lot given how steep the cyclical declines in the early 1980s and early 1990s were.

I am actually somewhat surprised that a government official would say something like that. Usually they are hopelessly bullish. Perhaps Darling has seen the video with comedians John Bird and John Fortune that I recently posted where they argued that since the public is used to hearing lies from the government, he should make gloomy statements.

The decline in the pound will have both negative and positive effects for economic growth. On the one hand, it will likely reduce the large U.K. trade- and current account deficit. On the other hand, it will likely raise price inflation, making it more difficult for the Bank of England to reduce interest rates further.


Anonymous Anonymous said...

The jolly politicians are trying to "Jaw-bone" the Pound = talk it down. Giving inflation less priority, no doubt.

Göran, Sweden

9:12 AM  

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