Tuesday, October 26, 2010

Pound forecast to tumble on 'insane' spending cuts

"I think what Britain is doing is absolutely insane" John Taylor, the founder of the $8bn FXConcepts fund, told The Sunday Telegraph. "The Conservatives will lose their stomach for this."

Reducing Britain's £156bn budget deficit is the cornerstone of the government's plan for restoring the economy's health. George Osborne, the Chancellor of the Exchequer, told Parliament last week that the £81bn in spending cuts would pull "Britain back from the brink."

Although Mr Osborne's plan has won support from many economists, there remains concern that it will damage a recovery that is already showing signs of faltering.

"The last retail sales numbers were pretty ugly and then we have to go through the VAT hit," said Mr Taylor, who at 67 is one of the oldest operators in the foreign-exchange markets. The pound will fall below 1.40, possibly this year, he expects. Sterling reached 1.43, its weakest against the dollar this year in May.

The Bank of England has publicly welcomed sterling's decline since the financial crisis erupted in 2008, but the central bank is not alone. Having already yanked hard on monetary and fiscal levers, an increasing number of governments are eyeing a weaker currency as a way of securing their share of an uneven global recovery. (more)

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