Weak sterling will deliver UK surplus

Britain is to transform itself from chronic over-spender to a global surplus country as the weak pound revives its export industry, according to a report by Goldman Sachs.


By Ambrose Evans-Pritchard

Goldman Sachs issued an alert advising clients to build up sterling positions Ben Broadbent, the bank’s UK economist, said the 20pc slide in sterling over the past year was “enough to push the UK’s current account into comfortable and permanent surplus”. Britain has not had a durable surplus in living memory.

The bank issued an alert yesterday advising clients to build up sterling positions. It said the economy was in better shape than it looked, with public debt likely to peak at under 80pc of GDP — lower than Germany and France.

UK faces a tough 2010, CBI warns “The UK data continues to exceed the Bank of England’s projections on the upside. We expect interest rates to rise from next spring,” said the bank’s currency team.

The economy is already expanding at a 2pc annual rate and inflation is proving “sticky” compared with Europe. Goldman expects the pound to strengthen by about 8pc to €0.84 over the next three months. It closed yesterday at €0.9035. This contrasts with warnings from BNP Paribas that sterling is on the cusp of another crash, with euro parity in sight by early next year.

The currency markets have been rattled by the Bank of England’s quarterly bulletin, which suggested that sterling may have suffered long-term damage during the financial crisis. The Treasury estimates that 5pc of the country’s economic base has been permanently lost.

Mr Broadbent said the UK’s public finances were in a “dire state” with a deficit near 13pc this year and next, but the lesson of fiscal retrenchment in the early 1990s was that a weak currency can bring swift recovery in a very open economy. “It would be risky to bet against the same happening again. The foreign exchange markets are discounting a lot,” he said.

Goldman said investors had exaggerated the currency risk faced by UK banks from the credit crunch. They also punished sterling this year because a high share of Britain’s overseas assets are in equities, but this no longer makes sense as global stock markets recover strongly.

Story by Telegraph...  http://bit.ly/1iW0qU


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