Britain economy facing crisis

Monday, August 18, 2008

Concerns about the economy of the UK weakened sentiment, thus hurting the sterling which dropped to a 21-month low on Monday. According to a recent survey, businessmen and factory owners do not expect the growth of their businesses in the near future due to the poor state of the economy. More than a third of business owners believe that they will have no choice but to cut jobs and bonuses.

Despite July's manufacturers' costs falling more than expected, the numbers were still higher than last year's, providing some support to the pound. This also sparkled expectations of an interest rate cut from the Bank of England, meant to boost economy growth. I think now that the economy is in such a bad shape, any encouraging news matters and will surely make some difference.

Actually what i believe is that the expectations of a cut in interest rates usually damage the currency by lowering its yield advantage, yet in the case of the UK economy in which growth has slowed so significantly, these prospects easing the UK's borrowing costs, could actually become an advantage.

Until the present, the BoE has been stuck between a rock and a hard place, with growing inflation on the one hand, and the limited ability to cut interest rates in the face of no growth, on the other. The Financial Services Authority of Britain has issued a statement that the industry should prepare itself for a possible crisis; similar to the one Britain went through during the 1990s recession.

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2 comments:

pee August 19, 2008 at 3:26 PM  

Hi there
Your reviews are quite nice and accurate. I love reading updates and thus it enhances my knowledge.

Great Work

samuel August 22, 2008 at 1:15 PM  

Hey.............

You have correctly said that Britain economy is under pressure. Actually the rise in gold and oil prices has brought the dollar's to a halt. It seems that the rise of oil to above $115 a barrel was not at all helpful to the euro and the sterling as it was previously expected, reflecting the bearish sentiment towards these currencies.

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