[ 2013-12-28 ]

Sterling hits latest high as good economic news flows
The pound rocketed to its highest level in almost
two-and-a-half years yesterday as the good news
about Britain’s economic recovery continued to
roll in.
Sterling jumped by 0.8 per cent to stand at
$1.6521 on Friday. This was the highest level
since the summer of 2011 and follows mounting data
showing that Britain is finally on the road to
economic recovery.
Several economists are now predicting that growth
could surge by almost 2 per cent this year. If
this materialises, it would mark the fastest pace
of growth in six years and surpass the Office for
Budget Responsibility’s forecast for a 1.4 per
cent expansion.
Traders expect the pound to continue on its upward
path and Mark Schofield, an analyst at Citi, even
suggested it could hit $1.80 by the end of next
year if the run of good economic data continues.
Others believed that was far too optimistic. David
Jones, chief marketing strategist at IG predicted
that its could hit $1.72 in the next couple of
months before falling back to around $1.65 by the
end of the year.
The strong pound will come as good news for many
British tourists as it is making exotic locations
like Egypt more affordable. New research from the
Post Office earlier this week showed that the
power of the pound could put up to 28 per cent
more spending money in sun-seekers’ pockets.
It said that sterling will stretch furthest of all
on long haul trips to Bali or South Africa because
their currencies have slumped by well over 20 per
cent.
However, it is a concern for some. The Bank of
England’s rate setting Monetary Policy Committee
(MPC) warned earlier this month that the recovery
could be hampered if sterling continues to
strengthen.
“Any further substantial appreciation of
sterling would pose additional risks to the
balance of demand growth and to the recovery,”
minutes to its latest monthly meeting showed.
The value of sterling tumbled in 2008, helping
British exporters to be more competitive.
However, its has picked up sharply in recent
months as the economic recovery continues to motor
ahead, fuelling fears that any further rises could
risk Britain’s chances of achieving a balanced
recovery across all sectors.
David Kern, chief economist at the British
Chambers of Commerce, said: “If the pound goes
up a lot further it will be of some concern, but I
don’t think we’ve reached that level now.
It’s one to watch, but at the moment I
wouldn’t be too alarmed.”
A ‘bittersweet’ recovery for some
Although the UK is on track to record its best
rate of annual growth in six years, a leading
think-tank has warned that the economic recovery
will be “bittersweet” for millions of families
across the country as 2014 looks set to be the
beginning of the next debt bubble.
The IPPR warned that a massive build-up in
household debt before 2008 contributed to the
depth of the last recession and that this will
start to increase again over the next 12 months.
Tony Dolphin, chief economist at the IPPR, said
that despite the recent spate of good news on
economic growth, serious structural flaws that
reach back before the financial crisis struck
still “pervade” the economy, including high
unemployment, low rates of investment and a poor
export performance.
“Unless we move to adopt a new economic model,
the recovery will prove unsustainable and
bittersweet for those who do not benefit from it
before it is extinguished,” he said.

Source - The Times(UK)

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