subject: Frbiz.com Reported Pound May Fall Below Parity With Euro, Economists Warn [print this page] Economists have warned that the pound is on the brink of sinking below parity with the euro due to the Governments unconvincing plans to tackle Britains 178 billion budget deficit.
Douglas McWilliams, the chief executive of the Centre for Economics and Business Research (cebr), said that the British economy was walking five yards away from the edge of the cliff and could be toppled by an unexpected gust.
The pound is trading at 1.10 against the euro after hitting a low of 1.02 a year ago. However, currency markets are reflecting the expectation of a win for the Conservatives in next years election, raising hopes of tougher action to tackle the deficit. Any signs of Labour closing the gap ahead of the election would result in the pound plunging, according to the cebr.
If I had to bet, I would bet on the side of parity being broken, said Mr McWilliams, adding that there was significant downside risk for the euro as a result of the divergent economic performances of countries such as Germany and Greece.
The warning follows comments from a number of leading economists in a letter to The Sunday Times yesterday that attacked the Government for its irresponsible failure to set out a convincing plan to reduce Britains budget deficit. Economists including Tim Congdon, Patrick Minford and Gordon Pepper said that there was a heightened risk of a downgrade of Britains sovereign debt rating.
Meanwhile, IHS Global Insight has projected UK GDP growth at 0.9 per cent next year, with the recovery proving to be gradual and prone to losses of momentum. It said that serious economic and financial obstacles, such as the rise in VAT and the end of the car scrappage scheme, would impede sustainable healthy growth.
IHS predicts that consumer price inflation will hit 3 per cent early next year, but will return to below 2 per cent by the end of the year. But it expects that more fiscal tightening measures will be announced after the election as the Pre-Budget Report left many questions unanswered.
There is still a pressing need on whoever is Chancellor after the general election that is due by mid-2010 to be much more transparent on public spending cut details and tax rises in order to win credibility over the long-term recovery of the UKs public finances, said Howard Archer, chief UK and European economist at IHS.
by: Frbiz
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